>-. 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


Digitized  by  the  Internet  Archive 

in  2008  with  funding  from 

Microsoft  Corporation 


http://www.archive.org/details/cyclopediaoflaw06chad 


CYCLOPEDIA  OF  LAW 


EMBRACING 


THE  BRANCHES  OF  AMERICAN 
JURISPRUDENCE 


HOW  TO  STUDY  LAW 

blackstone's  commentaries  and  quiz 

CONSTITUTIONAL  LAW— FEDERAL   AND    STATE 

INCLUDING  LEADING  CASES 

PERSONAL  RIGHTS   AND  DOMESTIC   RELATIONS 

INCLUDING  LEADING  CASES 

CONTRACTS  AND  PARTNERSHIPS 

INCLUDING  LEADING  CASES 

AGENCY   AND  BAILMENTS,   INCLUDING  COMMON 
CARRIERS 

INCLUDING  LEADING  CASES 

NEGOTIABLE  INSTRUMENTS  AND  PRINCIPAL  AND  SURETY 

INCLUDING  LEADING  CASES 

WILLS  AND  SETTLEMENT  OF  ESTATES 

INCLUDING  LEADING  CASES 

PERSONAL  PROPERTY  AND   EQUITY  OR  CHANCERY  LAW 

INCLUDING  LEADING  CASES 

PUBLIC    CORPORATIONS    AND    PRIVATE    CORPORATIONS 

INCLUDING  LEADING  CASES 

REAL  PROPERTY  AND  PLEADING  AND  PRACTICE 

INCLUDING  LEADING  CASES 

CRIMINAL  LAW,  CRIMINAL  PROCEDURE,   AND    EVIDENCE 

INCLUDING  LEADING  CASES 

PUBLIC   INTERNATIONAL  LAW,  AND  LEGAL  ETHICS 

LEGAL  FORMS,  LATIN  TRANSLATIONS,   GENERAL  INDEX 


CYCLOPEDIA    OF    LAW 


NEGOTIABLE  INSTRUMENTS 

AND 

PRINCIPAL   AND   SURETY 


INCLUDING 

A   FULL   DISCUSSION    OF   THE   ORIGIN   AND   HISTORY 

OF   COMMERCIAL   PAPER,   BILLS  OF   EXCHANGE, 

PROMISSORY    NOTES,    AND    THE    LAW    OF 

GUARANTY   AND   SURETYSHIP,  WITH 

STATUTORY  MODIFICATIONS  OF 

THEM  WHICH  OBTAIN   IN 

MANY  STATES 

AND 

LEADING    CASES 


VOLUME    VI 


EDITOR   IN   CHIEF 

HON.  CHARLES  E.  CHADMAN,  LL.B.,  LL.M.,  LL.D. 

ASSISTED   BY 

A  CORPS  OF  LEGAL  EXPERTS 


PUBLISHERS 

DE  BOWER-ELLIOTT  COMPANY 
CHICAGO,  U.  S.  A. 


Vol.  VI. 
Copyright  1901 

BY 

Charles  K.  Chadman 


Copyright  1908 

BY 

American  Correspondence  School  of  Law 
Ch  icaqo 


FACULTY,  ADVISORY  BOARD  AND  LECTURERS 


Dean. 
HONORABLE  GEO.  D.  ANTHONY,  A.   B.,  A.   M.,  LL.  B. 

Author  op  Text  Books. 
HONORABLE  CHARLES  E.  CHADMAN,  LL.  M.,  LL.  D. 

Advisory  Board. 
HOWARD  W.  HAYES,  LL.  B., 

Assistant  Corporation  Counsel,  Chicago. 

RUSSEL  S.  CLARK,  LL.  B., 
Member  of  Illinois  Bar. 

GEORGE  J.  MEIER,  LL.  B., 
Member  of  Illinois  Bar. 

GEORGE  D.  ANTHONY,  LL.  B., 
Author  and  Writer  of  Text  Books. 

ROBERT  W.  DUNN,  LL.  B., 

Member  of  Illinois  Bar. 

THOMAS  D.  KNIGHT,  A.  B.,  A.  M.,  LL.  B., 

Ex-Ass't  State's  Attorney  and  Member  of  Illinois  Bar. 


COUPS   OF   LECTURERS 


T.  ELLIOTT  PATTERSON, 
Practicing  Attorney  Philadelphia,  Pa. 

CHARLES  G.  NEELY, 
Ex-Judge  Circuit  Court,  Illinois. 

C.  L.  SMITH, 
Judge  Municipal  Court,  Minneapolis. 

GILBERT  E.  ROE, 
Practicing  Attorney,  New  York  City. 

JOHN  D.  LAWSON, 
Dean  Missouri  Law  School,  Missouri. 

MAJOR  CHARLES  R.  EVANS, 

Dean  Law  Department,  Grant  University, 

Chattanooga. 

ORVILLE  W.  COOLIDGE, 

Judge  Circuit  Court,  Michigan. 

F.  A.  WILLIAMS, 

Justice  Supreme  Court,  Texas. 

ROBERT  M.  BASHFORD, 

Justice  Supreme  Court,  Wisconsin. 


PATRICK  B.  WOLFE, 

Ex-Judge  District  Court,  Iowa. 

JOSEPH  R.  LONG, 

Author  and  Lecturer,  Washington  and  Lee 

University,  Virginia. 

WILLIAM  H.  H.  HART, 

Ex-Attorney  General,  California. 

JAMES  A.  SEDDON, 

Ex-Judge  Circuit  Court,  Missouri. 

JAMES  SCHOULER, 

Author  and  Counsellor,  Boston,  Mass. 

WALTER  CLARK, 

Chief  Justice  Supreme  Court, 

North  Carolina. 

GEORGE  F.  TUCKER. 

Author  and  Practicing  Attorney. 

Boston,  Mass. 

EDWIN  W.  SIMS, 
United  States  District  Attorney,  Illinois. 

LUTHER  LAFLIN  MILLS, 
Ex-State's  Attorney,  Cook  County,  111. 


AUTHORITIES  CONSULTED 


In  writing  and  compiling  the  tweive  volumes  con- 
stituting the  Cyclopedia  of  Law,  neither  time  or 
expense  was  spared  to  make  it  what  it  is,  the  best  and 
most  comprehensive  work  of  its  character  ever  published. 
It  has  received  the  endorsement  of  many  of  the  high- 
est legal  authorities  in  America. 

The  standard  authorities  of  the  world  were  con- 
sulted during  the  time  of  its  compilation,  notably  : 


E.  S.  ABBOTT, 
On  Municipal  Corporations. 

W.    A.    ALDERSON, 
On  Judicial  Writs  and  Process. 

W.    C.   ANDERSON, 
Anderson's  Law  Dictionary. 

WILLIAM    F.    BAILEY, 
Bailey's    Personal    Injuries    Relat- 
ing   to    Master    and    Servant; 
Bailey's  Jurisdiction, 
etc.,  etc. 

FRANCIS    BACON, 
Bacon's    Complete    Works. 

M.   BACON, 
Bacon's  Abridgment. 

F.  H.  BACON, 

On    Benefit     Societies    and     Life 

Insurance. 

J.    P.    BISHOP, 

Criminal   Law;  Bishop's  Contracts; 

Bishop's  Directions  and  Forms; 

Bishop's  Marriage,   Divorce 

and   Separation,  etc., 

etc. 

G.    T.    BISPHAM, 
Principles  of  Equity. 


M.  M.  BIGELOW, 
Bills,   Notes  and  Checks;    English 
Procedure;    Bigelow's  Equity; 
Bigelow's  Estoppel;  Life 
and  Accident  insur- 
ance Reports. 

E.   C   BENEDICT, 
Benedict's  American  Admiralty. 

C.    F.    BEACH, 
Beach's     Contracts;      Beach's     In- 
surance; Beach's  Contributory 
Negligence;    Beach's 
Injunction;   Beach's 
Monopolies. 

E.  E.  BALLARD, 
Real  Property  Law;   Deed  Forms. 

SIMEON    E.    BALDWIN, 
Baldwin's       American       Railroad 
Law,    American   Judiciary; 
Baldwin's   Modern    Po- 
litical  Institutions. 

W.  E.  BENJAMIN, 

Bills,     Notes     and     Checks;     the 

recognized  standard  authority 

on  subjects  treated. 

U.    BLICKENSDERFER, 

Blackstone's    Elements;    Students' 

Review, 


AT  1 110RITIES  CONSULTED 


J.   H.   BREWSTER, 
Brewster's    Conveyancing. 

WILLIAM    BLACKSTONE, 
Blackstone's  Commentaries, 

Abridged  by  James  DeWitt  An- 
drews, Becket,  Chitty,  Elwell, 
Hammond,  Sharswood,  Brown. 
Blackstone's  Commentaries  have 
•been  text  books  for  students  for 

many  years. 

G.    BLISS, 
Life   Insurance. 

H.    C.    BLACK, 
Black's     Accident     Cases;      Bank- 
ruptcy  Law;    Constitutional 
Problems;    Law  Dictionary; 
Judgment;    Tax   Titles, 
etc.,  etc. 

C.  L.  BATES, 

Bates'   Federal   Equity   Procedure. 

W.  H.  BROWNE, 

Law    of    Trade    Marks;     Divorce 

and    Alimony. 

HENRY  F.  BUSWELL, 

Buswell's     Insanity;      Limitations 

and    Adverse    Possessions; 

Personal    Injuries. 

F.  M.    BURDICK, 

Partnership,    Sales,    Torts. 

A.  M.  BURRILL, 
Assignments;    Circumstantial   Evi- 
dence;   Practice. 

JOHN  BOUVIER, 
Institutes;    Law  Dictionary. 

IRVING    BROWNE, 
Domestic      Relations;      Bailments 
and   Carriers;    Criminal  Law; 
Law  and  Lawyer  in  Litera- 
ture; Parol  Evidence. 

S.    V.    CLEVENGER, 
Spinal  Concussion;   Medical  Juris- 
prudence of  Insanity. 

G.  A.  CLEMENTS, 
Digest    of    Fire    Insurance    Deci- 
sions. 


JOSEPH  CHITTY,  JR., 
Chitty's  Contracts. 

CHARLES    D.    DRAKE, 
Drake's   Attachment    Suits. 

GEORGE   B.   DAVIS, 
Davis'      Military     Law;      Interna- 
tional Law;  Elements  of  Law. 

M.   E.   DUNLAP, 
Abridgment    of   Elementary    Law. 

EATON    S.    DRONE, 
Copyright  Law. 

JOHN    F.    DILLON, 
Municipal  Corporations;   Jurispru- 
dence of  England  and  America. 

CHARLES    B.    ELLIOTT, 
Public  Corporations. 

SIMON    GREENLEAF, 

Greenleaf's    Evidence,    recognized 

as   the   highest   authority. 

A.    M.    HAMILTON, 
Medical   Jurisprudence. 

G.   E.    HARRIS, 
Contracts     by     Married     Women; 
Damages  by  Corporations;    Law 
of      Certiorari;       Sunday 
Laws  Civil  and  Crimi- 
nal. 

JOHN  G.   HAWLEY, 
International    Extradition;     Inter- 
state Extradition;   Law  of 
Arrest. 

E.  W.  HUFFCUT, 

Negotiable    Instruments;    Business 

Law ;    Agency. 

JAMES  L.  HIGH, 
High    on    Injunctions;    Extraordi- 
nary Legal   Remedies;    High's 
Receivers. 

F.   N.   JUDSON, 
Interstate  Commerce. 

J.  A.  JOYCE, 
Insurance:     Electric    Law;     Dam- 
ages. 


AUTHORITIES  CONSULTED 


JOHN  D.  LAWSON, 

Contracts;  Civil  Damages  for  Sale 

of  Liquors;  Defense  to  Crime; 

Expert   Evidence,   etc.,   etc. 

J.   R.   LAW, 

Irrigation    Law;     Domestic    Rela- 
tions. 

S.   S.  MERRILL, 
Mandamus;    Conflict  of  Laws. 

J.  W.  MAY, 
Law  of  Crime;    Insurance;    U.    S. 
Supreme  Court  Practice;  Fraud- 
ulent Conveyances. 

G.  L.  PHILLIPS, 
Code  Pleading. 

J.   H.   PURDY, 

Private  Corporations. 

H.   E.   PAINE, 
Law  of  Election. 

J.  RAM, 

Ram's  Facts;   Legal  Judgments. 

W.  C.  ROBINSON, 

American  Jurisprudence;    Elemen- 
tary Law;    Forensic  Oratory; 
Law   of   Patents. 

W.   H.  RAWLE, 

Covenants     for      Title;      Rawle's 

Equity. 

H.  D.  SEDGWICK, 

Law  of  Damages;   Leading  Cases 

on  Law  of   Damages. 

JAMES   SCHOULER, 
Domestic     Relations;     Bailments; 
Executors     and      Administra- 
tors;  Law  of  Wills, 
etc.,  etc. 


W.  L.   SNYDER, 

Mines     and     Mining;      Interstate 

Commerce  Act. 

GEORGE  H.  SMITH, 
Elements  of  Right  and  of  the  Law. 

JAMES    F.    STEPHEN, 
Stephen's  Practice;  Digest  of  Evi- 
dence;   Criminal    Law,    etc. 

HANNIS   TAYLOR, 

International     Law;      Jurisdiction 
and    Procedure   of   U.    S.    Su- 
preme Court. 

C.    G.    TIEDEMAN, 
Bills,  Notes  and  Checks;  Commer- 
cial  Paper;    Municipal   Corpo- 
rations; American  Law  of 
Real   Property. 

BRADLEY  M.  THOMPSON, 

Cases    of     Equity    Pleading    and 

Practice. 

H.   C.   UNDERHILL, 

Criminal     Evidence;     Trusts    and 

Trustees;    Wills. 

GEORGE  W.  WARVELLE, 

Abstracts    of    Title;     Ejectments; 

Ethics;   Real  Property,  etc. 

FRANCIS  WHARTON, 

American    Law;    Agency;    Conflict 

of  Laws;  Contracts;   Criminal 

Law;    International  Law; 

Law  of  Negligence, 

etc.,  etc. 

JOHN  H.  WIGMORE, 
Examinations  in  Law. 

J.  G.  WOERNER, 

American  Guardianship. 


PREFACE. 


This  volume  of  the  Cyclopedia  of  Law,  treats  of  two 
very  important  branches  of  law — the  law  of  Negotiable 
Instruments,  and  the  law  of  Suretyship  and  Guaranty. 
These  subjects  lie  at  the  very  basis  of  Commercial  law, 
and  contain  most  of  the  principles  governing  the  every- 
day affairs  of  business  men. 

Many  bulky  books  covering  these  subjects  have  been 
compiled  suitable  for  practitioners.  This  volume  the 
author  has  designed  as  a  simple  and  helpful  handbook 
for  the  use  of  students,  business  men,  notaries,  and  those 
who  desire  the  general  and  essential  principles  of  law, 
rather  than  an  exhaustive  and  technical  discussion  of 
rules  and  cases. 

It  is  needless  to  point  out  the  prime  importance  of 
an  accurate  knowledge  of  the  law  of  Negotiable  Instru- 
ments and  Suretyship  to  the  business  man  of  today,  and 
yet  how  many  are  utterly  ignorant  of  the  important  and 
well-settled  rules  governing  these  subjects,  and  are  de- 
pendent upon  professional  advice  whenever  they  would 
know  their  legal  rights  and  obligations. 

In  this  book  the  fundamental  and  important  princi- 
ples of  Commercial  law  are  set  forth,  in  reasonable  com- 
pass, that  all  who  wish  may  become  familiar  with  those 
6  iii 


iv  PREFACE. 

inks  which  more  or  less  pervade  and  control  all  commer- 
cial activities. 

No  branch  of  the  law  is  more  essential  to  know  and 
to  understand  than  the  subjects  treated  in  this  volume, 
for  they  are  a  part  of  the  daily  experience  of  almost 
every  business  man. 


CONTENTS. 


Preface    iii 

Abbreviations    315 

NEGOTIABLE    INSTRUMENTS. 


CHAPTER  I. 

THE  SUBJECT   INTRODUCED    AND  DEFINED. 

Meaning  of  "Negotiable  Instruments" 1 

History  of  Negotiable  Paper 3 

Purpose  Answered  by  Negotiable  Instruments 5 

Kinds  of  Negotiable  Instruments 6 

Bills  of  Exchange  Defined 7 

Usual  Form  of  Bill  of  Exchange 8 

Promissory  Note  Defined 9 

Usual  Form  of  Promissory  Note 10 

Check  Defined 11 

Essentials  of  Negotiability 12 

Writers  on  Negotiable  Instruments 13 


CHAPTER  II. 

ESSENTIALS    OF    BILLS    AND    NOTES. 

Must  Be  in  Writing,  Date,  Signature 14 

Same  Subject — Designation  of  the  Parties 17 

Same  Subject— The  Payee 20 

6  v 


vi  CONTENTS. 

.Must  Be  Payable  in  Money  Only 24 

Same  Subject — Payable  in   Foreign  Money 27 

Same   Subject — How,  and  Where  Stated 28 

Must  Be  for  the  Payment  of  a  Sum  Certain 28 

Same  Subject — Examples  of  Certainty  as  to  the  Sum  Pay- 
able     29 

The  Sum  of  Money  Must  Be  Payable  without  Conditions.  .  .  32 

Same  Subject — "On  or  Before  a  Given  Date" 34 

Musi  Contain  Words  of  Negotiability 36 

Same  Subject — Words  of  Negotiability,  Examples  of 37 

Concerning  the  Consideration  for  the  Note  or  Bill 38 

Concerning  the  Place  of  Payment 39 

The  Effect  of  a  Seal 40 

Witnesses,  Delivery,  Etc 40 

The  Effect  of  Notes  and  Bills  Executed  in  Blank 43 

Words  Sufficient  to  Constitute  the  Promise 44 


CHAPTER  III. 

THE    PARTIES. 

In  General 46 

Commercial  Paper  of  an  Infant  Considered 46 

Commercial  Paper  of  an  Insane  Person  Considered 48 

Commercial  Paper  of  Married  Women  Considered 49 

An  Alien  Enemy  Cannot  Be  a  Party  to  Commercial  Paper .  .    50 

Partners  as  Parties  to  Commercial  Paper 51 

Same  Subject — Bona  Fide  Holders 54 

Same  Subject — A   Corporation  Acts  by   Its  Agents,  Their 

Powers   55 

Public  or  Municipal  Corporations  as  Parties  to  Commercial 

Paper    57 

Same  Subject — How  the  Corporation  is  Bound,  Signature  of 

Agent    59 

Trustees,  Guardians,  Etc.,  as  Parties  to  Commercial  Paper.  .  60 
6 


CONTENTS.  vii 


CHAPTER  IV. 

THE  CONSIDERATION. 

In  General 63 

What  Constitutes  a  Valuable  Consideration 63 

Who  are  Holders  for  Value 64 

Who  are  Bona  Fide  Holders  for  Value  without  Notice 67 

Same  Subject — Accommodation  Paper 69 

Effect  When  Consideration  Is  not  Given  or  Fails,  Etc 70 

Fraud  or  Duress  as  Affecting  the  Consideration 72 


CHAPTER  V. 

ACCEPTANCE   AND  TRANSFER  CONSIDERED. 

The  Purpose  of  Acceptance 74 

The  Meaning  and  Effect  of  Acceptance 74 

Bills  that  Must  Be  Presented  for  Acceptance 75 

Presentment,  How  Made 75 

Presentment,  When  Excused 79 

Acceptance   Considered 79 

Acceptance  for  Honor,  or  Supra  Protest 81 

Presentment  for  Payment  Considered 83 

In  What  Ways    Bills  and  Notes  May  be  Transferred 84 

Transfer  by  Acts  of  Law 84 

Transfer  by  Assignment 85 

Transfer  by  Negotiation,  Its  Meaning 85 

Negotiation  by  Delivery  and  by  Indorsement 87 

Kinds  of  Indorsements 87 

Qualified,  Conditional  and  Restrictive  Indorsements 88 

Who  May  Negotiate  a  Bill 89 

To  Whom  a  Bill  May  Be  Negotiated 90 

When  a  Bill  May  Be  Negotiated 90 

Same  Subject — Overdue  Paper 91 

Liability  of  the  Indorser  and  Rights  of  the  Indorsee 92 

6 


viii  CONTENTS. 


CHAPTER  VI. 

DUTIES   OF    ill  E   HOLDER. 

Iii  General "* 

IIou  to  Ascertain  the  Proper  Date  for  Presentment 94 

.Modi-  of  Presentment 95 

Meaning  and  Purpose-  of  Protest 95 

Ni    ing"  or  Preparation  for  Protest 97 

What  the  Certificate  of  Protest  Should  Contain 98 

Protesi  Evidence  of  What  Facts 99 

How   Protest  May  Be  Waived  or  Dispensed  with 99 

Protest  for  Better  Security 100 

Meaning  and  Purpose  of  Notice 100 

Meaning  of  -Due  Notice,"  by  Whom  and  When  to  Be  Given  101 

Notice  Given  by  Others  than  the  Holder 107 

When  Notice  of  Dishonor  Is  Unnecessary 108 

Excuses  for  Delay  in  Giving  Notice  of  Dishonor 110 

Conflict  of  Law  as  Regards  Notice Ill 

Duty  of  Holder  to  Accept  Payment  and  Deliver  Bill Ill 

Who  May  Make  and  Receive  Payment 112 

Effect  of  Payment  Properly  Made 112 

Payment,  How  Appropriated  When  There  Are  Two  or  More 

Bills    H4 

Pavment  by  Bill,  When  Considered  Absolute  or  Conditional.  114 


CHAPTER  VII. 

LIABILITIES  OF  PARTIES,  AND  SPECIAL  FORMS  OF   DISCHARGES. 

Liability  as  between  Drawee  and  Drawer  or  Holder 117 

Liability  of  Acceptor  to  Holder 117 

Liability   of  Drawer  or  Endorser  to  the  Holder HO 

Same  Subject — Exchange  and  Re-Exchange  Discussed.  .  .  .121 

Same  Subject — Interest 122 

Liability  of  Person  Who  Transfers  by  Delivery  Only 123 

6 


CONTENTS.  ix 

Liability  of  Person  Accommodated  to  Accommodation  Party  124 
What  Will  Operate  to  Discharge  the  Liability  of  Parties  to 

a  Bill  or  Note 124* 

Same  Subject — When  Surety  Discharged 125 

Same  Subject — Forgery  and  Alterations  as  a  Discharge.  .  .126 
Time  within  Which  Suit  May  Be  Brought  on  a  Bill 129 


CHAPTER  VIII. 

PROMISSORY  NOTES   AND   CHECKS   SPECIALLY   CONSIDERED. 

Form  and  Interpretation  of  a  Promissory  Note 130 

The  Transfer  of  Promissory  Notes 132 

Liability  of  Maker  of  a  Note 132 

A  Check  Defined  and  Discussed 132 

Certified  Checks  Discussed 134 

Negotiability  of  Checks 137 

Presentment  for  Payment  and  Protest  of  Checks 137 

Same  Subject— Time  within  Which  Checks   Must  Be  Pre- 
sented for  Payment 138 

Same  Subject — When  Check  Is  Deemed  Overdue  and  Charges 

Holder  with  the  Equities 139 

Who  May  Draw  Checks  against  Deposits 140 

When  a  Check  May  Be  Revoked 140 

Rights  and  Duties  of  the  Bank  or  Banker 141 

Rights  and  Liabilities  of  Drawer  of  Check 143 

Account  Paid  by  Check  Not  Discharged  Until  the  Check  Is 
Paid 1^4 


CHAPTER  IX. 

PAPER  MONEY,  COUPON  BONDS,  AND  QUASI-NEGOTIABLE  PAPER. 

Kinds   of  Paper  Money   and  Effect  as   Negotiable   Instru- 
ments     *  *° 

Coupon  Bonds  Defined  and  Explained 148 

6 


x  CONTENTS. 

Transfer,  Presentment  for  Payment  of  Coupon  Bonds 149 

Actions  on  Bonds  and  Coupons,  and  Defenses  on  Municipal 

Bonds    151 

Certificates  of  Deposits  as  Negotiable  Instruments 152 

Bills  of  Lading  as  Negotiable  Instruments 153 

Certificates  of  Stock  as  Quasi-Negotiable  Instruments 155 

Warehouse  Receipts  as  Quasi-Negotiable  Paper 156 

Letters  of  Credit  and  Circular  Notes 156 

6 


PART   II. 

THE    LAW     OF    SURETYSHIP     AND 
GUARANTY. 


CHAPTER  I. 

THE  CONTRACT  DEFINED  AND  EXPLAINED. 

Suretyship  and  Guaranty  Defined  and  Distinguished 159 

General  Requisites  of  the  Contract,  History  and  Authorities.  162 

Who  May  Become  a  Surety  or  Guarantor 163 

The  Consideration  for  the  Promise  of  the  Surety  or  Guaran- 
tor     164 

Bond  Given  When  Not  Required,  or  in  Different  Form  Binds 

Surety    166 

Surety  May  Be  Sound  Though  Name  Not  in  Body  of  Writ- 
ing, and  His  Obligation  May  Arise  by  Implication 167 

When  Joint  Maker  of  a  Note  May  Be  Shown  to  Be  a  Surety 

by  Parol  Evidence 168 

When  Surety  Estopped  from  Denying  Recitals  of  Facts  in 

Written  Obligation 170 

Negotiability  of  Guaranties  Discussed 171 

When  Offer  of  Guaranty  Must  Be  Accepted 173 

Forms  and  Kinds  of  Guaranties 173 

Limitations  of  Surety's  Contract  as  Regards  Time,  Act  or 

Amount    175 

Effect  of  the  Statute  of  Frauds  upon  the  Contract 177 

Same  Subject— Effect  When  the  Contract  Is  within  the  Stat- 
ute and  Not  in  Writing 182 

6  xi 


xii  CONTENTS. 

CHAPTER  II. 

LIABILITY    OF    SURETY     OK     GUARANTOR HOW    DISCHARGED,    ETC. 

Construction  of  ('out met  of  Surety  or  Guarantor 184 

When  the  Surety  May  Be  Sued 186 

Same  Subject      Meaning  of  Due  Diligence 188 

Liability  of  Surety  for  Payment  of  Overdue  Notes  and  for 

Rent  When  Tenant  Holds  Over 189 

Extent  of  Surety's  Liability  for  a  Debt  or  on  a  Bond 190 

Liability  of  Surety  on  Discounted  Note 190 

Liability  of  Guarantor  on  General  and  Particular  Guaranty.  191 

Liability  of*  Guarantor  or  Surety  in  Special  Cases 192 

Revocation  of  Guaranty  on  Death  of  Guarantor,  and  by  No- 
tice     ' 193 

When  the  Surety  May  Be  Sued  .Jointly  with  the  Principal.  .194 
Surety   Not   Liable  at  Law,  May  or  May  Not  Be  Chargeable 

in  Equity    195 

Contract  of  Surety  Governed  by  Law  of  Place  Where  Made.  196 
Liability  of  Surety  When  Principal  Discharged,  or  not  Orig- 
inally Bound 196 

Necessity    for  Demand  on   the  Principal  and  Notice  of  De- 
fault   to   Guarantor 197 

Liability  of  Blank  Indorsers  and  Accommodation  Parties  to 

Commercial    Paper 200 

Ways  in  Which  Surety  or  Guarantor  May  Be  Discharged.  .  .202 

Discharge  of  Surety  or  Guarantor  by  Payment 202 

Discharge  of  Surety  or  Guarantor  by  Giving  Time 203 

Same  Subject  —  Exceptions  and  Other  Principles 206 

Discharge  of  Surety  or  Guarantor  by  Alteration  of  the  Con- 
tract     ' 208 

Discharge  of  Surety  or  Guarantor  by  Fraud,  Misrepresenta- 
tion. Concealment,  Etc 209 

Discharge  of  Surety  or  Guarantor  by  Creditor  Relinquishing 

Security    211 

Same  Subject — Negligent  Loss  of  Collateral  Security 214 

6 


CONTENTS.  xiii 


CHAPTER  III. 

OF  THE  RIGHTS  OF  SECURITIES  AND  GUARANTORS CONTRIBUTION 

AND   SUBROGATION. 

In  General 216 

The  Right  to  Indemnity  from  the  Principal 216 

Same  Subject — Other  Principles 218 

Rights  of  the  Surety  or  Guarantor  against  the  Creditor 221 

Rights  of  Surety  or  Guarantor  against  Third  Persons 222 

Of  the  Right  to  Contribution 222 

Same  Subject — Who  Are  Co-Sureties 223 

Same  Subject — Other  Principles  Concerning  Contribution.  .225 
Same  Subject — Other  Equitable  Rights  against  Co-Securi- 
ties    226 

Subrogation  an  Equitable  Right 228 

Prerequisites  to  the  Right  of  Subrogation 229 

How  the  Right  to  Subrogation  Enforced 230 

When  Subrogation  Will  Be  Allowed 230 

Same  Subject — In  Case  of  a  Judgment 232 

Extent  of  the  Right  of  Subrogation 233 

When  Creditor  Entitled  to  Securities  Held  by  the  Surety.  .  .235 


APPENDIX. 


Negotiable  Instrument  Code  of  Ohio 237 

Questions  for  Students 291 


NEGOTIABLE  INSTRUMENTS. 


CHAPTER  I. 

THE  SUBJECT  INTRODUCED  AND  DEFINED. 

Sec.  746.  MEANING  OF  "NEGOTIABLE  IN- 
STRUMENTS."—By  Negotiable  Instruments,  also 
called  "negotiable  paper"  and  "commercial  paper,"  are 
meant  that  exceptional  class  of  contracts  or  obligations 
in  writing,  which  by  the  law  merchant,  commercial  usage, 
and  now  by  statute,  may  be  assigned  or  transferred  from 
person  to  person  independent  of  the  rules  of  the  common 
law  regarding  assignments  generally,  and  which  when 
properly  delivered  or  indorsed  to  another  may  enable 
that  other,  called  the  holder  or  indorsee,  to  sue  upon  it 
in  his  own  name  free  from  any  defenses  which  the  obligor 
might  have  against  the  original  holder.* 

*"Negotiable,  describes  that  which  is  capable  of  being  trans^ 
ferred  by  assignment,  a  thing  which  may  be  transferred  by  a 
sale  and  indorsement,  or  delivery.  This  negotiable  quality  trans- 
fers the  debt  from  the  party  to  whom  it  was  originally  owing 
to  the  holder,  when  the  instrument  is  properly  indorsed,  so  as 
to  enable  the  latter  to  sue  in  his  own  name  either  the  maker 
of  a  promissory  note,  or  the  acceptor  of  a  bill  of  exchange,  and 
the  other  parties  to  such  instruments,  such  as  the  drawer  of  a 
bill  or  the  indorser  of  a  bill  or  note,  unless  the  holder  has  been 
guilty  of  laches  in  giving  the  required  notice.  It  must,  how- 
ever, be  payable  to  order  or  bearer,  and,  at  all  events,  in  money 
only,  and  not  out  of  any  particular  fund."  (Abbott's  L.  Diet., 
"Negotiable,"  citing  Walker  v.  Ocean  Bank,  19  Ind.  247.) 

1 


2  NEGOTIABLE    INSTRUMENTS. 

In  a  previous  volume  of  the  Cyclopedia  of  Law*  we 
have  seen  that,  at  the  early  common  law,  contracts  could 
not  be  assigned,  the  reason  being  that  the  right  con- 
ferred by  a  contract  is  a  right  to  sue,  or  a  "chose  in  ac- 
tion/' and  to  permit  this  action  to  be  assigned  was  held 
to  he  an  encouragement  to  litigation  and  not  sanctioned 
by  the  wisdom  of  the  law.f  This  rule,  however,  was  not 
founded  in  reason,  and  has  been  outgrown.  The  equity 
courts,  at  an  early  date  refused  to  recognize  it,  and  the 
law  courts  have  made  it  a  mere  technicality  by  allowing 
the  assignee  to  sue  in  the  name  of  the  assignor  but  for  his 
own  use  and  benefit.  By  statutes  in  the  various  States 
permitting  or  declaring  that  all  suits  shall  be  brought  in 
the  name  of  the  real  party  in  interest,  the  rule  of  the 
common  law  regarding  assignments  of  contracts  is  prac- 
tically nullified.  But  from  the  earliest  times,  commer- 
cial, or  negotiable  paper,  has  been  an  exception  to  this 
common  law  rule,  and  has  been  transferable  from  hand 
to  hand  with  the  right  in  the  holder  to  sue  in  his  own 
name,  and  hence  they  are  very  properly  designated  by 
writers  as  "negotiable"  contracts. :|: 


♦Vol.  IV.,  Sees.  472-479,  under  the  subject  of  Contracts. 

f "The  great  wisdom  and  policy  of  the  sages  and  founders  of 
our  law  have  provided  that  by  no  possibility,  title,  right  nor 
thing  in  action  shall  be  granted  to  strangers,  for  that  would  be 
the  occasion  of  multiplying  contentions  and  suits  of  great  op- 
pression of  the  people."  (Lord  Coke,  in  Lampet's  Case,  10  Co. 
Rep.  48.) 

t  Walker's  Am.  Law,  Sec.  180.  Under  the  present  statutes 
requiring  suits  to  be  brought  in  the  name  of  the  real  party  in 
interest,  the  distinction   between   negotiable  and  non-negotiable 


THE    SUBJECT    DEFINED.  3 

Sec.  747.  HISTORY  OF  NEGOTIABLE  PA- 
PER.— There  is  some  dispute  as  to  the  exact  time  when 
certain  forms  of  negotiable  paper  began  to  be  used.  Bills 
of  exchange  were  used  by  the  Romans  in  the  time  of 
Cicero,  but  did  not  possess  the  negotiable  characteristics 
of  our  bills  of  exchange.  Similar  bills  of  exchange  were 
made  use  of  by  the  Venetians  prior  to  1272,  their  origin 
being  ascribed  to  the  Jews  when  exiled  from  various 
countries  for  usury,  enabling  them  to  draw  their  wealth 
after  them  into  countries  where  they  were  permitted  to 
reside.  The  Lombards  and  Florentines  are  also  given 
the  credit  of  their  invention,  and  further  it  is  stated  that 
they  were  employed  by  King  John  as  early  as  1202  to 
remit  money  to  his  agents  at  Rome.  As  a  result  of  the 
various  theories  Mr.  Parsons  arrives  at  the  conclusion 
that  bills  of  exchange  were  "in  use  among  the  commercial 
nations  of  Europe,  and  especially  along  the  shores  of  the 
Mediterranean,  about  five  centuries  ago,  and  that  they 
were  then  of  recent  introduction."* 

Inland  bills  of  exchange,  which  are  distinguishable 
from  foreign  bills,  in  being  drawn  and  payable  in  the 
same  country,  were  of  later  origin,  and  were  first  used  in 
England  about  the  reign  of  Charles  II. f  While  prom- 
issory notes,  though  possibly  used  as  evidence  of  obliga- 


instruments  lies  in  the  protection  given  to  holders  of  negotiable 
paper  against  the  equities  existing  between  prior  parties. 

*1  Parson's  Notes  and  Bills,  2.  See  also  in  this  connection, 
III  Kent  Com.  44 ;  1  Daniel's  Negotiable  Instruments,  4-5 ; 
Chitty  on  Bills,  11  ;  Story  on  Bills,  Sees.  5-11  :    2  Bl.  Com.  467. 

fTiedeman,  Com.  Paper,  Sec.  3;  Daniel's  Neg.  Inst.  8. 


4  NEGOTIABLE    INSTRUMENTS. 

tions  to  pay  money  at  an  early  day,  were  not  recognized 
as  negotiable  by  the  courts  until  inland  bills  of  exchange 
began  to  be  used,  and  were  then  confounded  with  inland 
bills.  As  a  result  of  the  opposition  of  Lord  Holt,  who 
declared  in  Clerke  v.  Martin  (2  Ld.  Raym.  757),  "that 
the  maintaining  of  these  actions  upon  such  notes  were 
innovations  upon  the  rules  of  the  common  law,  and  that 
it  amounted  to  setting  up  a  new  sort  of  specialty  un- 
known to  the  common  law,  and  invented  in  Lombard 
Street,  which  attempted  in  these  matters  of  bills  of  ex- 
change to  give  laws  to  Westminster  Hall,"  it  became 
necessary  to  settle  the  matter  of  the  negotiability  of 
promissory  notes  by  statute,  as  Lord  Holt  repeatedly 
denied  that  they  could  be  declared  upon  as  an  inland 
bill  under  the  custom  of  merchant.*  By  the  statutes  of 
3  and  4  Anne,  chapter  9,  and  7  Anne,  chapter  25,  prom- 
issory notes  were  declared  negotiable  in  England  the 
same  as  bills  of  exchange.! 


*See  Buller  v.  Crips,  6  Mod.  29;  Grant  v.  Vaughan,  3  Burr. 
1525. 

fBy  the  statute  of  3  and  4*  Anne,  ch.  9,  it  was  enacted:  "That 
all  notes  in  writing  that  shall  be  made  and  signed  by  any  per- 
son, etc.,  whereby  such  person,  etc.,  shall  promise  to  pay  to  any 
other  person,  his,  her,  or  their  order,  or  unto  bearer,  any  sum 
of  money  mentioned  in  such  note,  shall  be  taken  and  construed 
to  be,  by  virtue  thereof,  due  and  payable  to  any  such  person, 
etc.,  to  whom  the  same  is  made  payable ;  and  also  every  such 
note  payable  to  any  person,  etc.,  his,  her,  or  their  order,  shall 
be  assignable  or  indorsable  over,  in  the  same  manner  as  inland 
bills  of  exchange  are  or  may  be,  according  to  the  custom  of 
merchants ;  and  that  the  person,  etc.,  to  whom  such  sum  of 
money  is  or  shall  be  by  such  note  made  payable,  shall  and  may 


THE    SUBJECT    DEFINED.  5 

In  the  United  States  similar  statutes  have  been  en- 
acted in  the  various  States,  and  the  negotiability  of  any 
note  depends,  it  would  seem  upon  the  statute  having 
been  complied  with.  But  it  is  held  by  many  authorities 
that  promissory  notes  are  negotiable  independent  of  any 
statute  by  the  custom  of  merchants,  the  contrary  is  also 
maintained  by  other  authorities.* 

Sec.  748.  PURPOSE  ANSWERED  BY  NEGO- 
TIABLE INSTRUMENTS.— "Negotiable  contracts 
were  introduced  in  modern  times  for  the  benefit  of  com- 
mercial intercourse.  They  are  designed  to  circulate 
readily  from  hand  to  hand,  and  thus  multiply  the  facili- 
ties of  traffic  and  credit."f  Professor  Tiedeman  states 
that  the  development  and  extension  of  commerce  out- 
growing the  limited  supply  of  money,  as  well  as  the 
danger  from  loss  by  robbery  and  destruction  in  the  trans- 


maintain  an  action  for  the  same,  in  such  manner  as  he,  she,  or 
they,  might  do  upon  any  inland  bill  of  exchange,  made  or  drawn 
according  to  the  custom  of  merchants,  against  the  person,  etc., 
who  signed  the  same ;  and  that  any  person,  etc.,  to  whom  such 
note  that  is  made  payable  to  any  person,  etc.,  his,  her,  or  their 
order,  is  endorsed  or  assigned,  or  the  money  therein  mentioned 
ordered  to  be  paid  by  indorsement  thereon,  shall  and  may  main- 
tain his,  her,  or  their  action  for  such  sum  of  money,  eithei 
against  the  person,  etc.,  who  signed  the  note,  or  against  any  of 
the  persons  that  indorsed  the  same,  in  like  manner  as  in  cases 
of  inland  bills  of  exchange." 

*Irwin  v.  Maury,  1  Mo.  194;  Dunn  v.  Adams,  1  Ala.  527; 

1  Parson's  N.  &  B.  13,  hold  that  they  are  negotiable  independent 
of  statute;   while  Davis  v.  Miller,  14  Gratt.  18;  Morton  v.  Rose, 

2  Wash.  (Va.)  233,  hold  the  contrary, 
f Walker's  Am.  Law,  Sec.  180. 


G  NEGOTIABLE    INSTRUMENTS. 

portation  of  money,  led  to  the  invention  and  use  of  a  rep- 
resentative of  money  —  commercial  paper — which  pos- 
sesses the  characteristic  of  money  in  that  it  passes  cur- 
rent and  thus  becomes  a  medium  of  exchange.  It  was 
the  demands  of  commerce,  he  believes,  that  induced  the 
courts  to  extend  to  commercial  paper  the  character  of 
money,  and  that  this  exchange  quality  is  what  distin- 
guishes commercial  paper  from  other  instruments  of  in- 
debtedness.* This  contention  is  strengthened,  if  not 
proven,  by  the  fact  that  as  commerce  and  trade  devel- 
oped new  forms  of  commercial  or  negotiable  paper  were 
invented,  and  this  process  of  adding  to  the  variety  of 
instruments  possessing  the  quality  of  negotiability  has 
not  ceased  at  the  present  time,  though  over  nine-tenths 
of  the  volume  of  business  is  estimated  to  be  conducted  by 
this  paper  medium  of  exchange.! 

Sec.  749.  KINDS  OF  NEGOTIABLE  IN- 
STRUMENTS.— At  common  law,  the  first  instrument 
recognized  as  possessing  negotiable  qualities  was  a  for- 


*See  Tiedeman,  Com.  Paper,  Sec.  1. 

fThis  development  of  a  paper  currency  in  the  face  of  the 
wise  (?)  policy  of  financiers  and  economists,  who  demand  a 
money  unit  with  intrinsic  value  equivalent  to  its  face  value, 
affords  a  striking  example  of  the  way  in  which  the  needs  of 
trade  and  commerce  force  a  modification  of  the  law  in  the  very 
teeth  of  the  money  sharks  whose  greed  demands  the  limitation 
of  the  volume  of  money.  Were  it  not  for  this  commercial  mint, 
in  which  untold  millions  of  a  practical  and  business-like  exchange 
medium  can  be  created  independent  of  the  gambling  of  the  money 
sharks,  humanity  would  long  since  have  expired  with  a  last 
quiver  upon  the  "cross  of  gold!" 


THE    SUBJECT   DEFINED.  7 

eign  bill  of  exchange,  which  came  into  vogue  and  was 
sanctioned  by  the  custom  of  merchants.  This  was  fol- 
lowed by  inland  bills  of  exchange,  and  inland  bills  by 
promissory  notes,  whose  negotiability  was  settled  by  the 
statute  of  3  and  4  Anne,  chapter  9.  By  State  statutes, 
bills,  notes  and  bonds  are  made  equally  negotiable,  and 
in  addition  to  these  forms  of  negotiable  instruments, 
checks,  drafts,  bank  notes,  coupon  bonds,  bills  of  lading, 
warehouse  receipts,  and  letters  of  credit  have  been  devel- 
oped with  all  or  some  of  the  features  of  negotiable  in- 
struments. 

Sec.  750.  BILLS  OF  EXCHANGE  DEFINED. 
— A  bill  of  exchange  is  defined  by  Blackstone  to  be  "an 
open  letter  of  request  from  one  man  to  another,  desiring 
him  to  pay  a  sum  of  money  therein  named  to  a  third 
person  on  his  account."  (2  Com.  4>66.)  Later  defini- 
tions only  improve  on  Blackstone  by  stating  that  the  re- 
quest must  be  unconditional,  and  the  amount  payable  ab- 
solutely and  at  all  events.* 

Bills  of  exchange  are  either  foreign,  or  inland.  By  a 
foreign  bill  of  exchange  is  meant  one  drawn  in  one  coun- 

*Thus  in  Byles  on  Bills,  1,  it  is  said,  "a  bill  of  exchange  is 
an  unconditional  written  order  from  A  to  B,  directing  B  to  pay 
C  a  sum  of  money  therein  named."  While  Mr.  Daniel  defines 
a  bill  of  exchange  as  "an  open  letter  addressed  by  one  person 
to  a  second,  directing  him,  in  effect,  to  pay  absolutely  and  at 
all  events,  a  certain  sum  of  money  therein  named,  to  a  third 
person  or  to  any  other  to  whom  that  third  person  may  order 
it  to  be  paid ;  or  it  may  be  payable  to  bearer  or  to  the  drawer 
himself."  (1  Daniel's  Neg.  Inst.  35.  See  also,  Bay  ley  on  Bills, 
1,  and  Tiedeman,  Com.  Paper,  Sec.  2.) 


8  NEGOTIABLE    INSTRUMENTS. 

try  and  payable  in  another.  While  an  inland  bill  of  ex- 
change designates  one  drawn  and  payable  in  the  same 
State  or  country.  If  the  bill  is  payable  in  a  different 
State  or  country  from  that  in  which  it  is  drawn,  it  is 
foreign;  and  if  drawn  and  payable  in  the  same  State  or 
country  it  is  inland,  regardless  of  the  residence  of  the 
parties.  (Buckner  v.  Findley,  2  Pet.  586.)  The  differ- 
ent States  of  the  United  States  are  regarded  as  foreign 
to  each  other,  and  a  bill  drawn  in  one  payable  in  another 
is  deemed  a  foreign  bill.  (Warren  v.  Crooms,  20  Me. 
139.)  The  chief  distinction  between  an  inland  and  for- 
eign bill  is,  that  the  former  is  construed  and  interpreted 
by  the  law  of  its  origin,  and  need  not  be  protested  for 
non-payment,  while  the  latter  is  construed  by  the  law  of 
the  place  of  payment  and  must  be  protested  in  order  to 
hold  the  drawer  and  indorsers.* 

Sec.  751.  USUAL  FORM  OF  BILL  OF  EX- 
CHANGE. — A  bill  of  exchange  is  usually,  though  not 
necessarily,  of  the  following  form: 

Coxneaut,  Ohio,  April  1st,  1900. 
Three  months  after  date,  pay  to  Abel  Payee,  or  order, 
sixty  dollars,  for  value  received. 

Charles  Drawer. 
To  Edward  Drawee. t 

"The  person  who  makes  this  order  (Charles  Drawer) 
is  called  the  Drawer;  the  one  upon  whom  the  order  is 


*Tiedcman,  Com.  Paper,  Sec.  3. 

f This  form,  as  well  as  several  others  which  follow,  are  adapted 
from   Swan's   Treatise,   the  Ohio   Justice   Guide,   and  are  used 


THE    SUBJECT    DEFINED.  9 

drawn  (Edward  Drawee)  is  called  the  Drawee;  and  the 
person  to  whom  the  money  is  directed  to  be  paid  (Abel 
Payee)  is  called  the  Payee."  (Swan's  Treatise,  15th 
ed.,  p.  689.)  The  Drawee  may  accept  the  bill,  which  is 
done  by  writing  the  word  "accepted"  across  the  face  of 
the  bill  and  signing  his  name  or  initials  thereto,  and  he  is 
then  called  the  Acceptor.  And  the  Payee  may  indorse 
the  bill,  which  is  done  by  writing  his  name  upon  the  back 
of  the  instrument  and  delivering  it  to  some  third  person, 
he  then  becomes  an  Indorser  as  well  as  Payee ;  the  party 
to  whom  he  thus  transfers  the  bill  is  called  an  Indorsee. 
The  indorsee  may  in  turn  become  an  indorser  by  transfer 
of  the  note,  and  then  sustains  a  double  relation  thereto, 
that  of  First  Indorsee,  and  Second  Indorser;  the  party 
to  whom  he  has  transferred  becoming  the  Second  In- 
dorsee, and  this  process  may  continue  through  any  num- 
ber of  indorsements.  The  last  indorsee  or  party  entitled 
to  the  bill  is  called  the  Holder. 

Sec.  752.  PROMISSORY  NOTE  DEFINED.— 
"A  promissory  note  is  an  unconditional  promise  to  pay 
to  another's  order  or  to  bearer  a  specified  sum  of  money 
at  a  specified  time."*  It  will  be  seen  that  a  promissory 
note  does  not  differ  materially  from  an  inland  bill  of  ex- 

because  it  is  believed  they  will  assist  the  student  in  identifying 
the  respective  parties  to  the  bill. 

*Tiedeman,  Com.  Paper,  Sec.  6.  "A  promissory  note  is  an 
unconditional  written  promise,  signed  by  the  maker,  to  pay 
absolutely  and  at  all  events  a  sum  certain  in  money,  either  to 
the  bearer  or  to  a  person  therein  designated,  or  his  order." 
(Benjamin's  Chalmers  B.  N.  &  Checks,  Art.  271;  Colehan  v. 
Cooke,   [1742]   Willes,  393-397.) 


10  NEGOTIABLE    INSTRUMENTS. 

change,  with  which  it  was  early  confounded.     It  is  an 
order  drawrn  on  one's  self  instead  of  a  third  person.f 

Sec.  753.  USUAL  FORM  OF  PROMISSORY 
NOTE. — The  form  of  a  promissory  note,  like  that  of  a 
bill  of  exchange,  is  not  arbitrary,  so  long  as  the  essentials 
of  a  negotiable  instrument  are  present.  A  customary 
form  is  as  follows : 

Conneaut,  Ohio,  April  1st,  1901. 
For  value  received,  I  promise  to  pay  Abel  Payee,  or 
order,  sixty  dollars,  two  months  after  date. 

Charles  Dame. 

"The  one  to  whom  the  money  is  payable,  still  continues 
to  be  called  the  Payee;  but  the  one  who  is  bound  to  make 
payment  is  neither  a  drawer,  drawee,  nor  acceptor;  but 
the  signer  of  the  note  is  called  the  Maker,  though  his 
liability  to  the  payee  is  precisely  the  same  as  if  he  had 
accepted  an  order,  or  bill  of  exchange,  in  favor  of  the 
payee."     (Swan's  Treatise,  p.  690.) 

The  payee  of  the  note  may  indorse  it  to  a  third  person 
the  same  as  a  bill  of  exchange,  and  become  both  payee 
and  first  indorser,  and  this  process  may  continue  through 


flndeed,"  says  Professor  Walker,  "it  is  sufficient,  so  far 
as  negotiability  is  concerned,  to  consider  all  negotiable  instru- 
ments as  divided  into  two  classes,  orders  and  promises :  for  a 
bill  of  exchange  is  a  written  order  for  the  payment  of  money ; 
which  definition  equally  embraces  checks,  drafts,  and  orders 
commonly  so-called :  and  a  promissory  note  is  a  written  promise 
for  the  payment  of  monc}',  which  definition  equally  embraces 
promises  under  seal,  whether  denominated  bonds  or  single  bills." 
(Am.  Law,  Sec.  180.^ 


THE    SUBJECT    DEFINED.  11 

any  number  of  indorsers,  the  last  party  taking  by  in- 
dorsement being  known  as  the  Holder.* 

Sec.  754.  CHECK  DEFINED.— A  check  is  de- 
fined by  Mr.  Daniel  as  "a  draft  or  order  upon  a  bank  or 
banking  house,  purporting  to  be  drawn  upon  a  deposit 
of  funds  for  the  payment  at  all  events  of  a  certain  sum 
of  money,  to  a  certain  person  therein  named,  or  to  him 
and  his  order,  or  to  bearer,  and  payable  instantly  on  de- 
mand." (Neg.  Inst.,  Sect.  1566.)  While  Professor 
Tiedeman  describes  a  check  as  "having  essentially  the 
characteristics  of  a  bill  of  exchange,  and  differing  from 
the  bill  in  being  drawn  on  a  bank  or  banker,  apparently 
and  presumptively  against  a  deposit  of  funds,  and  pay- 
able on  demand  without  grace."  (Com.  Paper,  Sec. 
430.) 

A  check  is  in  the  following  form: 

Conneaut,  Ohio,  April  1st,  1900. 
The  First  National  Bank,  pay  to  Abel  Payee,  or  order 
(or  bearer),  sixty  dollars  ($60.00),  and  charge  to  my 
account.  Charles  Drawer,  t 

*"In  a  bill,  the  person  who  makes  the  order  is  called  the 
drawer;  the  person  in  whose  favor  it  is  made,  the  payee;  and 
the  person  to  whom  the  order  is  addressed,  the  drawee,  and  after 
acceptance,  the  acceptor.  In  a  note,  the  person  who  makes  the 
promise  is  called  the  maker ;  and  the  person  to  whom  it  is  made, 
the  payee.  When  the  payee,  either  of  a  bill  or  note,  has  indorsed 
it  to  a  third  person,  it  is  then  said  to  be  negotiated.  He  be- 
comes the  indorser,  and  the  person  to  whom  it  is  transferred, 
the  indorsee.  He  may  in  his  turn  become  the  indorser,  and  so 
on  indefinitely.  The  person  having  a  right  to  the  bill  or  note 
at  any  particular  time  is  called  the  holder."  (Walker's  Am. 
Law,  Sec.  180.) 

■j""A  check  is  a  written  order  or  request,  addressed  to  a  bank. 


12  NEGOTIABLE    INSTRUMENTS. 

Checks  are  negotiable  instruments,  and  may  be  trans- 
ferred by  delivery  when  payable  to  bearer,  or  by  indorse- 
ment when  payable  to  any  person  or  his  order. 

The  other  forms  of  negotiable  or  quasi-negotiable  in- 
struments mentioned  in  Sec.  749  will  be  discussed  in 
their  order  in  a  later  chapter. 

Sec.  755.  THE  ESSENTIALS  OF  NEGOTIA- 
BILITY.— In  order  that  written  instruments  may  pass 
current  or  have  the  character  and  superior  advantages 
accorded  to  commercial  paper,  they  must  bear  certain 
indicia  of  their  worth  and  nature  upon  their  face.  These 
requisites  or  essentials  of  negotiability  are  thus  stated 
by  Professor  Walker:  "First,  it  must  be  in  writing; 
secondly,  it  must  be  for  the  payment  of  money  only,  and 
not  for  other  property;  thirdly,  it  must  be  for  the  pay- 
ment of  a  sum  certain,  and  not  for  unliquidated  dam- 
ages ;  fourthly,  the  sum  promised  must  be  payable  abso- 
lutely, and  without  conditions;  fifthly,  the  contract  must 
contain  words  of  negotiability,  as  'to  order,'  'to  assigns, ' 


or  its  cashier,  and  drawn  by  a  person  having  money  in  the 
bank,  requesting  the  bank,  or  its  cashier,  to  pay  on  demand, — 
that  is,  on  presentment, — to  a  person  therein  named,  or  to  bearer, 
a  named  sum  of  money. 

"The  person  who  draws  the  check  is  called  the  drawer;  the 
person  upon  whom  it  is  drawn  (the  bank)  is  called  the  drawee; 
and  the  person  to  whom  the  money  is  directed  to  be  paid  is 
called  the  payee."     (Swan's  Treatise,  p.  737.) 

"A  check  is  a  bill  of  exchange  drawn  by  a  customer  on  his 
banker  payable  on  demand."  (Benj.'s  Chalmers,  B.  N.  &  Checks, 
Art.  254.  Citing,  McLean  v.  Clydesdale  Bank  (1883),  9  App. 
Cas.  95;  21  Wend.  (N.  Y.)  372;  Bickford  v.  Bank  (1866),  42 
111.  238.) 


THE    SUBJECT    DEFINED.  13 

or  'to  bearer;'  and  sixthly,  it  must  import  a  considera- 
tion, so  as  to  preclude  the  necessity  of  inquiry  and 
proof."  (Am.  Law,  Sec.  180.)  A  contract  possessing 
these  properties,  since  it  is  liable  to  no  other  question 
than  what  relates  to  the  responsibility  of  the  parties. 

In  the  succeeding  chapter  we  shall  discuss,  one  by  one, 
these  essentials  of  negotiability,  and  explain  their  mean- 
ing in  detail. 

Sec.  756.  WRITERS  ON  NEGOTIABLE  IN- 
STRUMENTS.—Mr.  Daniel's  noted  work  on  Nego- 
tiable Instruments  is  a  standard  authority,  and  has 
reached  the  sixth  American  edition.  Byles  on  Bills  is  a 
smaller  work  which  has  reached  the  eighth  American  edi- 
tion. Among  American  authors  are  Story's  work  on 
"Promissory  Notes;"  Parsons'  work  on  "Notes  and 
Bills;"  Ames'  "Bills  and  Notes;"  Randolph's  work  on 
"Commercial  Paper;"  Tiedeman's  "Commercial  Paper." 
Among  the  more  recent  writers  are  Bigelow,  who  has 
compiled  a  work  styled  "Bills,  Notes  and  Checks;"  Ed- 
wards' work  on  "Bills  and  Notes;"  Hawthorne's  "What 
Instruments  Are  Negotiable;"  Van  Schaak's  "Bank 
Checks;"  and  Benjamin's  Chalmers'  "Bills,  Notes  and 
Checks." 


CHAPTER  II. 

ESSENTIALS  OF  BILLS  AND  NOTES. 

Sec.  757.  MUST  BE  IN  WRITING,  DATE, 
SIGNATURE. — A  bill  of  exchange,  promissory  note, 
or  other  negotiable  instrument  must  be  in  writing.  There 
can  be  no  verbal  promise  which  is  transferrable  by  de- 
livery or  indorsement.  The  bill  or  note  may  of  course 
be  printed,  and  even  the  signature  of  the  drawer  or 
maker  may  be  printed,  if  it  is  proven  that  such  printed 
signature  has  been  adopted  by  the  drawer  or  maker  as 
his  own  signature.  (Pennington  v.  Baehr,  48  Cal.  5(')5.) 
The  signature  may  also  be  written  in  pencil  as  well  as  in 
ink.  (Reed  v.  Roark,  14  Tex.  329.)  The  signature  of 
the  maker  need  not  be  at  the  place  indicated  in  the  forms 
given,  and  is  sufficient  if  it  appears  on  any  part  of  the 
paper,  even  the  back.  (Hunt  v.  Adams,  5  Mass.  359; 
Schmidt  v.  Schmaelter,  45  Mo.  502.)  So  it  is  held  that 
the  signature  is  sufficient  though  only  the  initials  have 
been  signed  to  the  instrument.  (Merchants'  Bank  v. 
Spicer,  6  Wend.  443.)  To  avoid  ambiguity  and  suspi- 
cion of  the  validity  of  the  instrument,  it  should  be  signed 
at  the  customary  place,  with  the  full  name  of  the  drawer 
or  maker.* 


*"A  bill  of  exchange  must  be  signed  by  the  drawer.  The 
drawer's  signature  may  be  added  at  any  time,  but  until  it  is 
there  the  instrument  is  inchoate  and  without  effect.     A  draws 

14 


ESSENTIALS    OF    BILLS    AND    NOTES.  15 

A  bill  or  note  is  usually  dated  at  its -commencement,  as 
in  the  forms  given,  and  this  is  proper  but  not  necessary.* 
Where  the  date  is  not  given  and  the  instrument  is  pay- 
able at  a  certain  time  after  the  date,  the  time  is  computed 
from  the  date  of  issue,  and  parol  evidence  is  admissible 
to  show  what  this  date  was.  (Lean  v.  Lozardi,  27  Mich. 
424.)  It  may  also  be  shown  that  there  was  a  mistake  in 
the  date  as  against  the  maker,  but  not  as  against  a  bona 
fide  purchaser  without  knowledge  of  the  mistake.  ( Hus- 
ton v.  Young,  33  Me.  85.)  An  undated  note  or  bill  may 
be  filled  up  by  the  payee,  and  any  date  inserted  by  him 
binds  the  maker  or  drawer  when  the  instrument  has  been 
indorsed  to  an  innocent  purchaser  for  value;  but  in  the 
hands  of  the  payee,  or  holders  with  notice  of  the  true 
date,  it  will  be  void  if  the  date  inserted  is  not  the  true 
date,  unless  authority  has  been  given  to  change  the  date. 
(Androscoggin  Bank  v.  Kimball,  10  Cush.  373;  Good- 
man v.  Simonds,  19  Mo.  106.) 

Bills  and  notes  may  be  antedated  or  post-dated  with- 
out destroying  their  negotiability. f    They  may  be  nego- 


a  bill  on  B,  payable  to  drawer's  order  but  does  not  sign  it.  B 
accepts,  and  it  is  transferred  for  value  to  C.  The  instrument 
is  neither  a  bill  nor  a  note.  (Benj.'s  Chalmers,  Art.  4,  et  seq. ; 
McCall  v.  Taylor,  34  L.  J.  C.  P.  365.) 

*It  has  been  very  generally  held  that  the  date  is  not  essential 
to  the  validity  of  a  bill  or  note.  (Tiedeman,  Com.  Pap.,  Sec. 
10.  Citing,  Michigan  Ins.  Co.  v.  Leavenworth,  30  Vt.  11 ; 
Drake  v.  Rodgers,  32  Me.  524;  Cowing  v.  Altman,  71  N.  Y. 
441 ;  Seldenridge  v.  Connable,  32  Ind.  375 ;  etc. ) 

f "It  is  usual  but  not  necessary,  to  insert  in  a  bill  the  date 
on  which  it  is  drawn.     A  bill,   expressed   to  be  payable  after 


16  NEGOTIABLE    INSTRUMENTS. 

tiatcd  before  the  day  of  the  date  without  suspicion  of  in- 
validity. (Riehter  v.  Selin,  8  Serg.  &  R.  425.)  And 
where  the  indorser  died  before  the  date  set  in  a  post- 
dated instrument,  the  indorsee  was  held  to  acquire  the 
full  title  of  the  indorser.  (Brewster  v.  McCardel,  8 
Wend.  478.)  The  rights  of  the  parties  are  determined 
with  reference  to  the  date  actually  stated  in  the  note  or 
bill  as  a  general  rule,  but  in  case  the  note  or  bill  would 
be  void  if  it  had  been  executed  on  that  day,  either  be- 
cause the  maker  was  incompetent  or  the  day  precluded 
the  making  of  valid  paper,  it  can  be  shown  in  behalf  of 
its  validity  that  it  was  actually  negotiated  at  a  different 
date.  But  a  bill  post-dated  or  antedated  for  the  very 
purpose  of  evading  rules  of  law  invalidating  paper  made 
on  the  day  the  paper  is  executed  and  delivered,  will  be 


date,  should  be  dated;  but  evidence  is  admissible  to  show  on 
what  day  such  bill,  if  undated,  was  issued,  and  it  takes  effect 
from  that  time."     (Richardson  v.  Elett,  10  Tex.  190.) 

"A  bill  may  be  ante-dated  or  post-dated.  Evidence  is  admis- 
sible to  show  on  what  day  such  bill  was  issued,  and  it  takes  effect 
from  that  time.  A  draws  a  bill  on  B,  bearing  date  May  1st, 
payable  to  C's  order.  C  indorses  to  D,  who  sues  A.  It  appears 
that  C  died  in  April.  D  may  show  that  the  bill  was  post-dated, 
and  that  C  really  indorsed  it.  He  can  then  recover."  (Benj.'s 
Chalmers  B.  N.  &  Checks,  Arts.  15-16;  Pasmore  v.  North, 
(1811),  13  East.  517.) 

"Such  evidence  is  not  admissible  to  invalidate  the  title  of  a 
bona  fide  holder  for  value. 

"A  bill  is  prima  facie  presumed  to  have  been  issued  on  the 
day  which  it  bears  date.  But  a  bill  bearing  date  on  a  Sunday 
is  not  presumed  to  have  been  issued  on  that  day."  Id.  Dohoney 
v.  Dohoney  (1870),  7  Bush  (Ky.),  217. 


ESSENTIALS    OF    BILLS    AND    NOTES.  17 

void  in  the  hands  of  all  persons  who  have  notice  of  the 
evasion  or  who  take  the  paper  without  consideration.* 

Sec.  758.  SAME  SUBJECT— DESIGNATION 
OF  THE  PARTIES.— The  name  of  the  maker  of  a 
note  or  the  drawee  of  a  bill  should  appear  on  the  instru- 
ment. In  the  case  of  the  note  it  is  important  as  it  is  the 
maker  who  is  liable  thereon;  and  in  case  of  the  bill  the 
drawer's  name  must  be  written  in  to  bind  the  party  ac- 
cepting.    (Levis  v.  Young,  1  Met.  Ky.  199.) 

In  a  case  where  the  signature  of  the  maker  of  a  note 
was  in  the  alternative  as  "A.  B.  or  else  C.  D."  it  was  held 
not  to  be  a  negotiable  note  within  the  statute  of  Anne,  as 
against  C.  D.,  on  account  of  his  conditional  liability. 
(Ferris  v.  Bond,  4  B.  &  Aid.  679.) 

The  execution  and  delivery  of  a  bill  of  exchange 
without  the  signature  of  the  drawer  will  be  valid  in 


*Tiedeman,  Com.  Pap.,  Sec.  12;  Pasmore  v.  North,  13  East. 
517;  State  Bank  v.  Thompson,  42  N.  H.  369. 

Note.  "A  bill  issued  on  Sunday  is  not  void  at  common  law, 
but  by  statutes  in  most  of  the  States,  resembling  the  29  Car.  2, 
c.  7,  a  bill  issued  on  Sunday  is  void  between  immediate  parties, 
(Sayre  v.  Wheeler  (1870),  31  la.  112)  and  incapable  of  ratifi- 
cation, but  valid  in  hands  of  a  bona  fide  holder  for  value,  if 
dated  on  a  secular  day,  either  on  the  ground  of  estoppel,  or 
because  the  statute  does  not  declare  the  bill  void  to  all  intents 
and  purposes.  That  the  bill  bears  date  on  a  Sunday,  is  imma- 
terial if  in  fact  issued  on  a  secular  day.  The  date  of  the  bill, 
e.  g.  "March  6th,  1881,  is  itself  notice  to  the  holder  of  its  issue 
on  Sunday,  as  the  almanac  is  part  of  the  law  of  the  land." 
(Benj.'s  Chalmers  B.  N.  &  Checks,  Art.  17  note,  citing  Knox  v. 
Clifford,  38  Wis.  651;  Vinton  v.  Peck,  14  Mich.  287;  Finney 
v.  Callendar,  8  Minn.  41.) 


18  NEGOTIABLE    INSTRUMENTS. 

two  cases,  first,  where  the  payee  is  authorized  to  fill 
in  the  name,  and  second,  where  without  authority  the 
name  has  been  filled  in,  and  after  acceptance  passed 
into  the  hands  of  an  innocent  holder. 

Instead  of  the  name  of  the  maker  or  drawer  a  de- 
scription of  the  person  sufficient  to  identify  him  will 
suffice,  so  a  note  signed  "Steamboat  Ben  Lee  and  Own- 
ers," was  held  to  be  sufficiently  executed.  (Sanders  v. 
Anderson,  21  Mo.  402.)  In  case  of  signature  by  mark 
it  is  customary  to  have  witnesses  to  the  mark  of  the 
signer,  but  this  is  for  identification  and  not  necessary 
to  the  validity  of  the  signature;  and  the  identification 
of  the  mark  may  be  shown  by  its  peculiarities  the  same 
as  in  the  case  of  a  signature.  (Flint  v.  Flint,  6  Allen 
34;  Shank  v.  Butsch,  28  Ind.  19.) 

An  agent  may  sign  the  name  of  the  maker  or  drawer 
to  a  bill  or  note,  and  parol  authority  is  generally  suf- 
ficient for  him  to  do  so.  (Daniel's  Negot.  Inst.,  Sec. 
274.) 

A  bill  or  note  may  be  executed  by  one  person  or  by 
a  number  of  persons.  When  executed  by  but  one,  it  is 
called  a  several  note.  When  executed  by  two  or  more, 
it  is  either  joint,  or  joint  and  several,  according  to  its 
wording.  Thus  if  in  a  note  signed  by  two  or  more,  the 
plural  number  is  used  in  referring  to  them  as  "we  prom- 
ise to  pay,"  it  is  held  to  be  a  joint  note.  (Barrett  v. 
Funay,  38  Ind.  86.)  While  if  in  the  same  note  the 
singular  number  is  used,  as  "I  promise  to  pay,"  then 
the  note  is  considered  as  joint  and  several,  since  this 
expression  indicates  an  intention  to  make  it  a  joint  and 


ESSENTIALS    OF    BILLS    AND    NOTES.  19 

several  note.  (Johnson  v.  King,  20  Ala.  270.)  So 
the  expression,  "we  or  either  of  us,"  is  held  to  make  a 
note  joint  and  several.  (First  Natl.  Bank  v.  Fowler, 
36  Ohio  St.  524.) 

The  distinction  between  a  joint  note,  and  one  joint 
and  several,  results  from  the  fact  that  at  common  law 
but  one  suit  may  be  maintained  on  a  joint  note,  and 
all  the  makers  must  be  joined  in  it.  While  the  holder 
of  a  joint  and  several  note  may  sue  all,  or  each  of  them 
singly,  but  not  more  than  one  and  less  than  all.  But 
under  the  modern  statutes  in  most  of  the  States,  the 
common  law  rules  respecting  joint,  and  joint  and  sev- 
eral notes  is  changed  so  that  suit  may  be  brought 
against  any  number  of  the  makers  regardless  of  the 
wording  of  the  instrument,  hence  the  distinction  is  not 
of  present  importance. 

The  two  or  more  drawers  of  a  bill  of  exchange  are 
treated  as  separate  personages,  unless  they  are  partners, 
and  are  each  entitled  to  the  same  notice  of  dishonor  as 
a  single  drawer.  Each  is  liable  to  the  acceptor  for  the 
whole  of  the  amount  of  the  bill.  ( Suydam  v.  Westf all, 
4  Hill  211;  Swilley  v.  Lyon,  18  Ala.  558.) 

The  drawee  is  a  party  to  the  bill,  and  his  full  name 
properly  appears  in  the  bill  as  indicated  in  the  form 
given.  But  here,  as  in  the  case  of  the  maker  and  drawer, 
the  place  given  the  name  of  the  drawee  is  not  impor- 
tant, neither  is  it  required  that  the  name  should  appear 
at  all,  if  from  the  language  used  the  identity  of  the 
drawee  can  be  made  out.  Thus  he  may  be  identified 
by  his  description,  official  position,  residence,  and  the 


20  NEGOTIABLE    INSTRUMENTS. 

like,  and  when  accepted  by  the  person  intended  is  valid. 
(Gray  v.  Milner,  8  Taunt.  739.)  Until  accepted,  a 
bill  without  the  name  of  the  drawee  is  invalid;  though 
it  is  claimed  if  such  a  defective  bill  is  accepted  by  any 
one,  it  becomes  valid,  as  the  acceptor  cannot  deny  that 
he  was  the  intended  drawee.* 

The  name  of  the  drawee  may  be  in  the  alternative 
as  "to  A,  or  to  B,"  or  "to  A,  and  in  case  of  need,  apply 
to  B."  This  simply  necessitates  that  the  holder  should 
present  the  bill  to  each  of  the  persons  named  as  drawees 
before  protest,  and  causes  no  uncertainty  or  condi- 
tional obligation  as  in  the  case  of  alternative  makers 
or  drawers.     (1  Parsons'  N.  &  B.  64,  65.)  f 

See.  759.  SAME  SUBJECT— THE  PAYEE.— 
Every  bill  or  note  should  specify  clearly  to  whom  it 
is  payable.     If  no  person  is  designated  as  payee  the 


*Tiedeman,  Com.  Paper,  Sec.  15;  1  Parsons'  N.  &  B.  288-9; 
Contra,  Davis  v.  Clarke,  6  Q.  B.  16. 

"Illustrations.  Instrument  in  the  form  of  a  bill,  but  addressed 
'To ■ — ,  Mobile,  Ala."     This  is  not  a  bill. 

"Instrument  in  the  form  of  a  bill  payable  to  drawer's  order, 
not  containing  the  name  of  the  drawee,  but  expressed  to  be 
payable  at  "No.  1  X  Street,  London."  B,  who  lives  there,  ac- 
cepts it.  This  is  a  bill,  and  B  is  liable  as  acceptor."  (Benj.'s 
Chalmers  B.  N.  &  Checks,  Art.  5.) 

f"A  bill  of  exchange  may  designate  one  or  more  persons  in 
addition  to  the  drawee,  to  be  resorted  to  for  acceptance  of  pay- 
ment in  case  of  need,  i.  e.  in  the  event  of  the  bill  being  dis- 
honored by  the  drawee.  Such  person  is  called  the  drawee  or 
referee  in  case  of  need,  or  simply  the  case  of  need.  The  prac- 
tice of  designating  a  case  of  need  is  not  common  in  America." 
(Benj.'s  Chalmers  B.  N.  &  Checks,  Art.  7.) 


ESSENTIALS    OF    BILLS    AND    NOTES.  21 

instrument  cannot  be  negotiated,  thoug'h  if  some  one 
is  indicated  so  as  to  be  identified  by  parol  evidence  it 
may  be  good  as  a  non-negotiable  contract.  (Brown  v. 
Gilman,  13  Mass.  158;  Kinney  v.  Flinn,  2  R.  I.  319.) 
This  does  not  mean  that  the  payee  must  be  actually 
named  in  the  instrument,  though  this  is  the  proper  way 
of  doing.  The  instrument  may  be  drawn  payable  to 
bearer,  no  name  being  given,  and  is  negotiable  as  though 
executed  to  a  named  person,  or  bearer.  The  payee  may 
be  designated  by  his  official  capacity  or  office,  or  de- 
scribed as  the  administrator  or  executor  of  a  deceased 
person,  or  the  guardian  or  trustee  of  an  infant.* 


*  Adams  v.  King,  16  111.  169;  Moody  v.  Threlkeld,  13  Ga. 
55 ;  Tiedeman,  Com.  Paper,  Sec.  17.  "Or  it  may  be  made  pay- 
able to  the  officer  of  a  corporation  or  incorporated  society ;  and 
without  any  further  description,  it  will  be  payable  to  whoever 
occupies  the  office,  at  the  time  of  presentment  and  demand,  since 
the  corporation  or  society  was  the  real  payee.  But  if  the  bill 
or  note  is  payable  to  the  officer  of  an  unincorporated  society,  it 
must  be  made  payable  to  the  present  occupant  of  the  office,  as 
payment  'to  the  secretary  for  the  time  being,'  would  make  the 
paper  void  for  uncertainty  as  to  the  payee."  (Tiedeman, 
Sec.  17.) 

"A  bill  may  be  expressed  to  be  payable  to  a  person  therein 
designated,  or  to  his  order,  or  to  bearer. 

"Illustrations.  Pay  C. — Pay  the  trustees  of  the  X  Chapel. — 
Pay  to  bearer  C. 

"Pay  C  or  order. — Pay  to  the  order  of  C. 

"Pay  to  bearer. — Pay  to  ship  'Fortune,'  or  bearer."  (Benj.'s 
Chalmers  B.  N.  &  Checks,  Art.  8.) 

"The  payee  of  a  bill,  not  payable  to  bearer,  must  be  an  exist- 
ing person  capable  of  being  ascertained  and  identified  at  the 
time  it  is  issued.    Extrinsic  evidence  is  admissible  to  identify  the 


22  NEGOTIABLE    INSTRUMENTS. 

A  note  payable  to  a  named  person,  there  being  two 
persons  of  the  same  name,  father  and  son,  is  presumed 
to  be  payable  to  the  rather  unless  the  word  "junior"  is 
affixed  to  the  signature.  But  where  the  son  had  pos- 
session of  the  note  and  had  sued  upon  it  a  counter  pre- 
sumption arises  which  will  permit  the  son  to  recover, 
unless  it  is  shown  that  the  father  was  intended.  (Steb- 
bing  v.  Spicer,  3  C.  B.  827;  Sweeting  v.  Fowler,  1 
Starkie  106.)  And,  as  a  rule,  an  ambiguity  caused 
by  a  mis-description  of  the  payee  will  not  destroy  the 
negotiability  of  the  instrument  if  the  payee  can  be 
identified  by  the  aid  of  parol  evidence.  (Cork  v.  Bacon, 
45  Wis.  192.)  A  note  in  the  form,  "Received  of  A.  B. 
one  hundred  dollars,  which  I  promise  to  pay  on  de- 
payee  when  misnamed,  or  when  designated  by  description  only, 
but  not  to  explain  away  an  uncertainty  patent  on  the  bill. 

"The  folloAving  are  valid: 

"Pay  to  C,  D  and  E,  or  the  order  of  any  two  of  them. 

"Pay  to  C  or  his  agent. — Pay  the  trustees  of  the  X  Society, 
or  their  treasurer  for  the  time  being. — Pay  C  or  his  wife. 

"Pay  to  C,  the  treasurer  for  the  time  being  of  the  X  Company. 

"Pay  to  the  administrator  of  X,  deceased.  Evidence  is  ad- 
missible to  show  that  C  was  administrator  of  X  when  the  bill 
was  issued. 

The  following  are  invalid : 

"Pay  to  C  or  D,  there  being  no  apparent  community  of  in- 
terest. 

"Six  months  after  date,  pay  to  the  treasurer  for  the  time 
being  of  the  C  institution. 

»pay  or  order.     Evidence  is  inadmissible  to  show 

that  C  was  intended  to  be  the  payee. 

"Pay  to  the  estate  of  X,  deceased.  (Benj.'s  Chalmers  B.  N. 
&  Checks,  Art.  9,  and  Illustrations.) 


ESSENTIALS    OF    BILLS    AND    NOTES.  23 

mand,"  was  held  to  give  a  sufficient  description  of  the 
payee,  as  from  the  receipt  it  is  manifest  that  A.  B.  was 
the  intended  payee.     (Green  v.  Davies,  4  B.  &  C.  235.) 

Where  the  instrument  is  payable  to  a  fictitious  person 
or  order,  whose  name  has  been  indorsed  on  the  back, 
the  paper  is  treated  as  though  it  were  payable  to  bearer 
in  the  hands  of  an  innocent  holder  for  value.*  Such 
a  holder  may  sue  in  his  own  name,  the  drawer  or  maker, 
and  also  the  acceptor  if  he  had  accepted  knowing  that 
the  payee  was  a  fictitious  person.     (3  Kent  Com.  78.) 

If  the  name  of  the  payee  or  indorsee  is  left  blank, 
any  bona  fide  holder  has  authority  to  insert  his  own 
name  as  payee  or  indorsee.  So  if  a  note  or  bill  is 
executed  to  the  payee  in  a  wrong  name  by  mistake,  he 
may  sue  in  his  right  name  and  show  the  mistake  at  the 
trial.  And  the  payee  may  assume  a  name  different 
from  his  real  name  and  the  use  of  such  adopted  name 
honestly  and  in  good  faith  will  not  invalidate  the  con- 
tract.    (Bartlett  v.  Tucker,  104  Mass.  345.) 

A  note  or  bill  may  be  made  payable  to  the  maker 
or  drawer,  and  when  endorsed  and  negotiated  it  be- 
comes a  valid  negotiable  instrument,  and  is  treated  as 
though  it  had  been  made  payable  to  bearer.  All  bills 
in  which  the  drawer  and  drawee  are  the  same  person 
may  be  treated  by  the  indorsee  as  bills  of  exchange  or 


*This  rule  is  statutory  in  some  States.  (See  Rev.  Stats.,  N. 
Y.  768.  Rogers  v.  Ware,  2  Neb.  29;  Lane  v.  Krekle,  22  la. 
404.) 


24  NEGOTIABLE    INSTRUMENTS. 

promissory  notes,   and  the  drawer  is  not  entitled   to 
notice  of  dishonor.* 

Sec.  700.  MUST  BE  PAYABLE  IN  MONEY 
ONLY. — Another  requisite  of  a  negotiable  instrument 
is,  that  it  must  call  for  the  payment  of  money  only,  and 
not  for  other  property.  Though  all  of  the  other  fea- 
tures of  negotiability  are  present  and  the  paper  calls 
for  the  payment  of  goods,  or  is  in  the  alternative,  as 
for  the  payment  of  a  sum  of  money  or  "to  issue  stock" 
(Hodges  v.  Shuler,  22  N.  Y.  114),  payable  in  "foreign 
bills"  (Jones  v.  Fales,  4  Mass.  245),  payable  "in  ginned 
cotton  at  eight  cents  per  pound"  (Lawrence  v.  Dough- 
erty, 5  Yerg.  435),  to  pay  "fifty  dollars,  and  deliver 
up  a  horse"  (1  Stra.  127),  it  is  not  negotiable  and  be- 
comes a  mere  contract. f 


♦Chicago  R.  R.  Co.  v.  West,  37  Ind.  211 ;  Planters'  Bank  v. 
Evans,  36  Tex.  592.  "The  most  common  instance  of  bills  of 
exchange,  where  the  drawer  and  the  drawee  are  the  same  person, 
are  those  in  which  one  member  of  a  firm  or  corporation  draws 
on  a  branch  of  the  firm  or  corporation  doing  business  in  a  dif- 
ferent place ;  those  in  which  an  agent  draws  a  bill  upon  his 
principal,  with  his  authority ;  and  those  in  which  one  officer  of 
a  corporation  draws  on  another  officer,  who  has  the  custody  of 
the  funds.  In  all  these  cases  the  paper  may  be  treated  as  a  bill 
or  note  at  the  option  of  the  holder."  (Ticdeman,  Com.  Paper, 
Sec.  20.) 

t"(l)  The  direction  must  be  imperative,  not  permissive  or 
precative;  but  the  insertion  of  the  mere  terms  of  courtesy  will 
not  make  it  precative. 

"Illustrations :  Mr.  B  will  much  oblige  Mr.  A  by  paying  C 
or  order. — Valid. 

"Please  let  the  bearer  have  $100.  I  will  arrange  it  with  you 
Hi  is  noon. — Valid. 


ESSENTIALS    OF    BILLS    AND    NOTES.  25 

Just  what  will  be  included  in  the  word  "money"  is 
not  always  clear.  Originally  it  was  limited  to  the 
stamped  metal  or  coin  issued  by  a  government.     But 


"Please  let  bearer  have  $100,  and  you  will  much  oblige  me. — 
Invalid. 

"We  authorize  you  to  pay  C  or  order. — Invalid. 

"(2)  An  order  to  pay  out  of  a  particular  fund  does  not  con- 
stitute a  bill;  but  an  absolute  order  to  pay,  coupled  with  (1) 
a  direction  to  the  drawee  to  reimburse  himself  out  of  a  particu- 
lar fund,  or  (2)  a  statement  of  the  transaction  which  gave  rise 
to  the  bill,  is  valid. 

"Illustrations.     The  following  orders  or  promises  are  invalid: 

"Pay  C  or  order  $100  out  of  the  money  in  your  hands  belong- 
ing to  the  X  Company. 

"Pay  C  or  order  $100  on  the  sale  or  produce  when  sold  of 
the  XX  Hotel. 

"Pay  C  or  order  $100  and  deduct  the  same  from  my  share 
of  the  partnership  profits. 

"The  following  are  valid: 

"Pay  C  or  order  $100,  as  my  quarterly  half-pay  due  1st  Feb- 
ruary by  advance. 

"Pay  C  or  order  $100  and  take  the  same  out  of  our  share  of 
the  grain. 

"Pay  C  or  order  $100  against  cotton  per  'Swallow.' 

"(3)   The  order  must  require  the  payment  of  money. 

"Illustrations:  The  following  are  not  bills.  An  order  for 
the  delivery  to  bearer  on  demand  of  a  certain  quantity  of  iron. 
A  promise  to  pay  C  or  order  $100  in  cotton ;  or  in  work  and 
labor.  A  promise  to  pay  in  money  or  in  property  at  the  maker's 
option.  Pay  C  or  order  $100  in  'good  East  India  bonds." 
(Benj.'s  Chalmers  B.  N.  and  Checks,  Art.  10.) 

Note. — An  order  invalid  as  a  bill  or  note  may  be  valid  as 
an  equitable  assignment  of  the  fund  or  account  to  which  it 
refers.  (Bank  v.  Dubuque  R.  Co.  (1879),  52  la.  378;  Grant 
v.  Wood,  12  Gray  220.) 


26  NEGOTIABLE    INSTRUMENTS. 

now  that  paper  issued  by  the  government  is  declared 
legal  tender,  money  properly  includes  all  legal  tender. 
Though  the  word  "currency"  is  a  broader  term  than 
money,  and  includes  bank-notes  which  are  not  legal 
tinder,  yet  it  is  held  that  certificates  of  deposit,  notes, 
bills,  bonds,  checks  and  the  like,  payable  in  "currency," 
or  in  "current  funds  of  this  State,"  "Arkansas  money," 
"current  Ohio  bank-notes,"  etc.,  constitute  good  com- 
mercial paper,  and  are  really  payable  in  money,  as  the 
term  used  is  but  a  common  expression  used  to  indicate 
current  legal  tender.} 

But  if  the  instrument  is  made  payable  in  the  paper 
or  currency  of  a  particular  bank,  specifically  and  abso- 
lutely, and  without  reference  to  the  currency  or  value 
of  the  paper,  it  is  held  not  to  be  for  the  payment  of 
money,  and  is  not  negotiable.* 

It  is  no  objection  to  negotiable  paper  that  it  calls 
for  a  special  kind  of  legal  tender,  as  "gold  coin." 
(Chrysler  v.  Pendis,  42  N.  Y.  209.)  But  the  legal 
authorities  are  divided  as  to  the  negotiability  of  instru- 
ment payable  in  currency  other  than  legal  tender.f 


l  Morris  v.  Edwards,  1  Ohio  189;  Graham  v.  Adams,  5  Ark. 
255;  Wilburn  v.  Greer,  6  Ark.  255;  Howe  v.  Hartness,  11  Ohio 
St.  449;  Bank  v.  Brown,  45  Ohio  St.  39;  Black  v.  Ward,  27 
Mich.  173. 

*Hawkins  v.  Watkins,  5  Ark.  481 ;  Bank  v.  Zadox  Street,  16 
Ohio  St  1. 

fThat  such  expressions  as  "current  funds,"  "bank-notes," 
"currency"  and  the  like  are  the  equivalent  of  "money,"  see  White 
v.  Richmond,  16  Ohio  5;  Judah  v.  Harris,  19  Johns.  144;  Drake 
v.  Markle,  21  Ind.  433 ;  Hunt  v.  Divine,  37  111.  137 ;  Butler  v. 


ESSENTIALS    OF    BILLS    AND    NOTES.  27 

Sec.  761.  SAME  SUBJECT— PAYABLE  IN 
FOREIGN  MONEY.— Negotiable  instruments  are 
not  invalidated  because  the  amount  payable  is  expressed 
in  money  of  the  denomination  of  a  foreign  country. 
But  a  note  is  not  negotiable  which  requires  the  obligor 
to  tender  money  of  the  foreign  denomination  in  pay- 
ment instead  of  a  like  sum  in  the  native  denomination. 
As  where  the  note  is  written  in  dollars  and  cents  and 
made  "payable  in  Canada  money."  (Thompson  v. 
Sloan,  23  Wend.  71.)  It  is  the  equivalent  value  of  the 
foreign  money  which  is  to  be  paid,  and  not  the  real 
foreign  money. 

All  notes  or  bills  made  in  the  United  States  and 
calling  for  the  payment  of  a  designated  number  of 
dollars  and  cents  are  held  to  be  negotiable,  and  to  be 
drawn  for  the  stated  amount  of  lawful  money  of  the 
United  States,  and  this  presumption  is  as  a  rule  con- 
clusive against  showing  that  some  other  denomination 
was  intended.  ( Cook  v.  Lillo,  103  U.  S.  793. )  A  noted 
exception  however  to  this  rule  was  made  by  the  courts 
in  the  cases  of  instruments  calling  for  the  payment  of 
a  specific  number  of  dollars  and  cents,  but  made  within 
the  lines  of  the  Confederate  government  during  the  civil 
war  and  intended  to  be  paid  in  Confederate  money 
which  was  greatly  depreciated.  In  order  to  do  equity 
between  the  parties  the  presumption  was  relaxed,  and 

Paine,  8  Minn.  324.  To  the  contrary,  see:  Collins  v.  Lincoln, 
11  Vt.  268;  Ford  v.  Mitchell,  15  Wis.  304;  Rindskoff  v.  Bar- 
rett, 11  la.  172;  Wright  v.  Hart,  44  Pa.  St.  454;  Johnson  v. 
Henderson,  76  N.  C.  227. 


28  NEGOTIABLE    INSTRUMENTS. 

the  parties  allowed  to  show  that  by  dollars  and  cents 
the  parties  meant  not  "the  lawful  money  of  the  United 
States,"  but  a  foreign  money  of  a  less  value,  the  amount 
payable  being  determined  by  ascertaining  the  value  of 
so  much  Confederate  money  at  the  time  and  place  of 
the  contract.* 

Sec.  762.  SAME  SUBJECT— HOW,  AND 
WHERE  STATED. — As  a  rule  the  denomination 
of  the  money  called  for  in  the  paper  must  be  stated 
in  the  body  of  the  note  or  bill,  and  not  merely  in  the 
margin.  Though  where  the  denomination  is  not  given 
in  the  body  of  the  instrument,  and  is  given  by  mark  or 
symbol  in  the  margin,  it  is  held  that  a  holder  may  write 
the  denomination  in  the  body  of  the  paper.  ( Tiedeman, 
Sec.  29d;  Beardsley  v.  Hill,  61  111.  354.) 

Sec.  763.  MUST  BE  FOR  THE  PAYMENT 
OF  A  SUM  CERTAIN.— It  is  also  a  requisite  to 
the  negotiability  of  an  instrument  that  it  call  for  the 
payment  of  a  definite  and  certain  sum,  and  not  for 
unliquidated  damages.  The  amount  to  be  paid  or  which 
the  paper  represents  should  be  stated  plainly  on  the 
face  of  the  instrument,  and  like  the  denomination  of 
the  money  must  be  stated  in  the  body  of  the  note  or 
bill  or  it  will  be  defective,  unless  it  is  purposely  left 
blank  and  authority  given  or  implied  to  fill  it  up.  (Nor- 
wich v.  Hyde,  13  Conn.  279.)  The  amount  is  cus- 
tomarily written  in  the  margin  also,  but  this  is  held  to 

*Ticdeman,  Com.  Paper,  Sec.  29c;  Stewart  v.  Solomon,  94 
U.  S.  434.  The  Confederate  Note  Case,  19  Wall.  548.  Its 
value  is  now  fixed  by  statute. 


ESSENTIALS    OF    BILLS   AND    NOTES.  29 

be  no  part  of  the  instrument,  and  made  simply  for  con- 
venience of  reference,  and  the  statement  in  the  body 
of  the  instrument  controls,  and  should  they  vary  any 
holder  may  change  the  marginal  figures  to  conform  to 
the  amount  as  written  in  the  body  of  the  paper.  ( Smith 
v.  Smith,  1  R.  I.  398.)  Unless  required  by  statute  to 
be  written  in  words,  the  amount  may  be  stated  in  the 
body  of  the  instrument  in  figures.  (Petty  v.  Fleispel, 
31  Tex.  169.) 

Unless  the  amount  of  the  paper  is  definitely  stated 
and  made  certain  by  the  instrument  it  will  not  be  ne- 
gotiable. Reference  to  other  papers  cannot  be  made 
to  make  certain  the  amount  called  for  by  the  instru- 
ment, but  it  is  to  be  construed  as  a  whole,  and  if  from 
anything  that  appears  on  the  face  or  back  of  the  paper 
itself  the  sum  is  made  certain,  the  instrument  is  nego- 
tiable. So  a  note  giving  the  number  of  acres  in  a  tract 
of  land  and  the  price  per  acre  agreed  to  be  paid,  was 
held  negotiable.  (Smith  v.  Clopton  [1849],  4  Tex. 
109.) 

Sec.  764.  SAME  SUBJECT— EXAMPLES  OF 
CERTAINTY  AS  TO  THE  SUM  PAYABLE.— 
By  custom  and  usage  instruments  are  written  with  ap- 
pended statements  or  agreements  which  apparently 
make  the  amount  payable  uncertain,  but  which  are  held 
to  be  negotiable  on  the  ground  that  the  amount  can  be 
ascertained  with  certainty  at  the  time  of  payment.  Thus 
the  note  or  bill  may  be  written  "with  current  exchange" 
on  some  money  center.  This  means,  in  effect,  that  the 
maker  or  drawer  agrees  to  pay  in  addition  to  the  sum 


30  NEGOTIABLE    IXSTHUMEXTS. 

named  the  expense  of  transmitting  the  money  to  the 
stipulated  place,  and  while  this  sum  may  vary  from  time 
to  time  it  is  not  held  to  destroy  the  negotiability  of  the 
paper.* 

In  case  the  stipulation  is  to  pay  costs  of  collection, 
or  a  certain  per  centum  for  attorney's  fees  in  collecting 
the  note  if  not  paid  at  maturity,  the  authorities  differ 
as  to  the  effect  of  this  provision.  "A  few  decisions  main- 
tain that  the  stipulation  is  in  the  nature  of  a  usurious 
charge,  and  avoids  the  whole  transaction  under  the  laws 
prohibiting  usury.  Other  decisions  hold  the  stipulation 
to  be  void,  as  against  public  policy,  because  it  is  in  the 
nature  of  a  penalty,  and  tends  to  the  oppression  of  im- 
pecunious debtors.  But  the  avoidance  of  the  stipulation 
on  such  grounds  enables  the  courts  to  treat  the  stipula- 
tion as  mere  surplusage,  and  hold  the  instrument  to  be 
negotiable  notwithstanding.  In  a  large  number  of  cases, 
the  stipulation  is  held  to  be  valid;  but,  because  it  ren- 
ders the  gross  sum  to  be  recovered  on  the  instrument 
uncertain,  its  insertion  in  a  bill  or  note  is  declared  to 
destroy  its  negotiability;  but  there  are  also  other  cases, 
which  not  only  recognize  the  validity  of  the  stipulation, 
but  also  the  negotiability  of  the  paper,  in  which  it 
appears."! 


♦Pollard  v.  Herrics,  3  B.  &  P.  335;  John  v.  Trisbie,  15  Mich. 
286;  Leggett  v.  Jones,  10  Wis.  35;  First  National  Bank  v. 
Dubuque,  etc.,  R.  R.,  52  la.  378. 

f  Tiedeman,  Com.  Paper,  Sec.  28b.  Citing,  State  v.  Taylor, 
10  Ohio  378;  Meyer  v.  Hart,  40  Mich.  517;  Sweeney  v.  Thick- 
stun,  77  Pa.  St.  131 ;  Storr  v.  Wakefield,  71  Mo.  622 ;  Overton 


ESSENTIALS    OF    BILLS    AND    NOTES.  31 

Akin  to  stipulations  making  the  agreement  uncertain 
as  to  the  amount  to  be  paid  are  those  collateral  obliga- 
tions which  are  sometimes  attached  to  an  instrument  call- 
ing for  the  performance  of  certain  other  acts  on  the  part 
of  the  obligor.  According  to  the  earlier  authorities  all 
such  stipulations  were  held  to  destroy  the  negotiability. 
Thus,  paper  for  the  payment  of  a  sum  of  money  and 
the  performance  of  certain  work  (Fletcher  v.  Thomp- 
son, 55  N.  H.  208),  the  payment  of  a  stated  sum  and 
the  settlement  of  other  debts  (Ayrey  v.  Fearnsides,  4 
M.  &  W.  168),  and  the  payment  of  a  certain  sum  for 
the  hire  of  a  negro,  with  a  stipulation  for  the  furnishing 
the  negro  with  clothing  (Barnes  v.  Gorman,  9  Rich. 
297) ,  was  held  non-negotiable.  But  later  decisions,  con- 
trary to  earlier  decisions,  have  held  valid  and  negotiable 
paper  stipulating  that  in  default  of  payment  the  holder 
or  his  agent  should  have  authority  to  confess  judgment 
against  the  maker  for  the  amount  of  the  note.  Instru- 
ments waiving  the  benefit  of  the  exemption  laws  have 
also  been  held  valid.* 


v.  Matthews,  35  Ark.  147;  Johnson  v.  Crossland,  34  Ind.  344, 
etc. 

By  statute  in  Indiana,  it  is  provided  that  a  stipulation  in  a 
negotiable  paper  to  pay  attorney's  fees  made  to  depend  upon 
a  condition  in  the  instrument,  shall  be  declared  illegal  and 
void.  An  unconditional  stipulation  is  held  not  to  be  avoided  by 
this  statute.     (Brown  v.  Barber,  59  Ind.  533.) 

*Zimmerman  v.  Anderson,  67  Pa.  St.  421  ;  Walker  v.  Woolen, 
54  Ind.  164;  Contra,  Overton  v.  Tyler,  3  Barr.  346. 

In  Ohio,  a  note  authorizing  the  holder  to  confess  judgment, 
is  called  a  "cognovit  note,"  while  a  stipulation  waiving  the 
benefit  of  the  exemption  laws  is  rendered  invalid  by  statute. 


32  NEGOTIABLE    INSTRUMENTS. 

Sec.  765.  THE  SUM  OF  MONEY  MUST  BE 
PAYABLE      WITHOUT      CONDITIONS.— A 

fourth  requisite  of  commercial  paper  is  that  the  sum  of 
money  promised  must  be  payable  absolutely  and  without 
conditions.  The  payment  must  be  promised  at  a  time 
certain  or  upon  a  condition  that  must  happen,  and  not 
depend  upon  a  contingent  event.  Thus  where  the  paper 
was  payable,  provided  a  ship  should  arrive  (Coolidge  v. 
Ruggles,  15  Mass.  387) ,  provided  a  railroad  should  be 
built  to  a  certain  point  within  a  stated  time  (Blackman 
v.  Lehman,  63  Ala.  547),  or  provided  the  maker  was 
able  (Lalinas  v.  Wright,  11  Tex.  572),  the  instrument 
was  held  non-negotiable  because  of  the  condition  being 
contingent  or  uncertain.  Any  uncertainty  or  indefinite- 
ness  in  the  time  of  payment  will  destroy  the  negotiability 
of  the  paper,  but  if  the  condition  upon  which  the  note  or 
bill  is  to  be  paid  must  happen  in  the  ordinary  course 
of  events,  however  remote,  the  instrument  is  negotiable. 
Thus  a  promise  to  pay  when  "A.  B.  dies,"  or  on  the 
first  day  of  January,  2000,  is  a  valid  negotiable  instru- 
ment, as  the  event  stated  must  happen.* 

*Coleman  v.  Cooke,  Welles  393;  Worth  v.  Case,  42  N.  Y. 
362 ;  Conn   v.  Thornton,  46  Ala.  587. 

By  a  number  of  American  authorities  notes  are  allowed  to 
be  negotiable  though  plainly  uncertain  as  regards  time  of  pay- 
ment, thus  the  promise,  "payable  from  the  avails  of  logs  bought 
of  A.  B.,  when  there  is  a  sale  made,"  (Sears  v.  Wright,  24 
Me.  278)  ;  "as  soon  as  I  can,"  (Works  v.  Hershey,  35  la.  340) ; 
"to  be  paid  as  soon  as  collected  from  my  accounts  at  P.,"  (Ubs- 
(Itll  v.  Cunningham,  22  Mo.  124),  have  been  held  good  as 
negotiable  instruments.     The  English  rule  is  quite  different,  and 


ESSENTIALS    OF    BILLS    AND    NOTES.  33 

So  if  the  instrument  is  to  be  negotiable  the  amount 
must  not  be  made  payable  out  of  a  particular  fund, 
but  must  be  drawn  absolutely  for  the  payment  of  the 
stated  amount  by  the  maker  or  acceptor  without  refer- 
ence to  a  special  fund.  Thus  if  a  paper  is  written,  pay- 
able out  of  a  pension,  out  of  stated  funds  when  received, 
"provided  A  shall  not  pay  it,"  "out  of  the  net  proceeds 
of  certain  ore,"  "on  account  of  brick  work  done  on  a 
certain  building,"  and  the  like,  it  is  uniformly  held  to 
be  non-negotiable.f 

A  drawer  of  the  instrument  may,  however,  indicate 
the  source  from  which  the  drawee  or  acceptor  may  repay 
himself,  without  making  the  payment  conditioned  upon 
such  fund,  or  relieving  the  acceptor  of  his  absolute  lia- 
bility, and  the  bill  will  be  negotiable.  And  in  the  same 
way  a  memorandum  showing  the  nature  of  the  debt 
which  the  instrument  is  to  pay  may  be  inserted  without 
affecting  its  negotiability.  Thus,  a  memorandum  that 
if  the  instrument  was  not  paid  the  insurance  policy 
should  be  void  (Kirk  v.  Dodge  Co.  Mut.  Ins.  Co.,  39 


the  United  States  Supreme  Court  holds  such  notes  as  non-nego- 
tiable, since  the  condition  expressed  may  never  happen.  (Nunez 
v.  Dantel,19  Wall.  560.  See  Tiedeman,  Com.  Pap.,  Sec.  25b.) 
f  "In  consequence  of  the  uncertainty  of  payment  which  would 
result  therefrom,  it  has  invariably  been  held  by  the  courts  that 
a  note  or  bill,  payable  out  of  a  particular  fund,  is  not  negotiable, 
for  the  liability  of  the  maker  or  drawer  is  conditional  upon  there 
being  a  fund."  (Tiedeman,  Com.  Paper,  Sec.  26,  citing, 
Worden  v.  Dodge,  4  Denio  159;  Pitman  v.  Crawford,  3  Gratt. 
127 ;  Corbett  v.  Clark,  45  Wis.  403 ;  Clarke  v.  Percenal,  2  B. 
&  Ad.  660.) 


34  NEGOTIABLE    INSTRUMENTS. 

Wis.  138)  ;  that  title  should  not  pass  until  note  was 
paid  (Heard  v.  Dubuque  Bank,  8  Neb.  1G),  and  direct- 
ing the  drawee  to  "charge  the  same  amount  against 
whatever  amount  may  be  due  me  for  my  share  of  fish" 
(Redman  v.  Adams,  51  Me.  433)  was  held  not  to  affect 
the  negotiability  of  the  paper. 

When  no  time  is  mentioned  for  payment  in  the  in- 
strument it  is  construed  to  be  payable  immediately,  as 
if  written  payable  on  demand,  and  the  fact  that  the 
note  is  written  with  interest  payable  annually  will  not 
change  this  construction.  (Jones  v.  Brown,  11  Ohio  St. 
C01.)  And  parol  testimony  cannot  be  introduced  to 
show  that  the  parties  intended  a  different  time.  Notes 
payable  "when  convenient,"  and  the  like  expressions, 
are  deemed  payable  in  a  reasonable  time,  where  they  are 
regarded  as  negotiable  at  all.  (Lewis  v.  Tipton,  10 
Ohio  St.  88.)  And  those  payable  on  demand,  are  con- 
sidered due  immediately  without  demand.  This  rule  is 
different  though  if  the  instrument  is  payable  a  certain 
number  of  days  after  demand,  demand  is  then  necessary 
to  fix  the  time  when  the  instrument  is  to  come  due.  ( In- 
surance Co.  v.  Jones,  35  Ohio  St.  351.) 

Sec.  766.  SAME  SUBJECT— "ON  OR  BE- 
FORE" A  GIVEN  DATE.— In  a  few  decisions  a 
note  or  bill  made  payable  "on  or  before"  a  stated  date 
has  been  held  non-negotiable,  but  the  great  majority 
of  decisions  declare  them  to  be  negotiable.  In  Mattison 
v.  Marks  (31  Mich.  421),  Judge  Cooley  decided 
such  a  note  to  be  negotiable,  and  stated  that  the  legal 
rights  of  the  holder  were  clear  and  certain,  the  note  being 


ESSENTIALS    OF    BILLS    AND    NOTES.  35 

due  at  a  time  fixed  and  not  before,  the  maker  having  a 
mere  option  to  pay  in  advance  of  the  legal  liability  if  he 
saw  fit.* 

Where  the  note  is  written,  payable  "on  the  return  of 
this  receipt  or  note,"  it  is  held  negotiable,  as  this  pro- 
vision is  not  a  contingency,  but  a  mere  restriction  im- 
plied if  not  expressed  in  every  promissory  note,  subject 
to  an  exception  in  case  the  instrument  is  lost  by  accident 
or  mistake.  (Frank  v.  Wessels,  64  N.  Y.  158.)  But 
"payable  on  the  return  of  my  guaranty  of  a  certain  note" 
added  to  a  note  was  held  to  impose  a  condition  not  im- 
plied by  law,  and  to  make  the  note  non-negotiable. 
(Blood  v.  Northrup,  1  Kan.  29.) 

The  provision  in  notes  payable  in  part  payments  or 
installments,  to  the  effect  that  if  any  one  of  the  install- 
ments is  not  paid  as  agreed,  all  installments  or  the  whole 
sum  shall  become  due  and  payable,  does  not  destroy  the 
negotiability  of  the  note,  and  such  notes  are  quite  com- 
mon, f  The  provision  that  the  interest  shall  be  paid  at 
stated  intervals,  and  if  not  paid  the  entire  sum  shall  be- 
come due  is  also  common,  and  does  not  affect  the  nego- 
tiability of  the  paper. 

Notes  made  payable  at  a  certain  date  or  time,  and 

*Walker  v.  Woolen,  54  Ind.  164;  Cidne  v.  Chidester,  85  111. 
523 ;  Palmer  v.  Hummer,  10  Kans.  464 ;  Helmer  v.  Krolick,  36 
Mich.  373,  hold  that  an  instrument  so  written  is  negotiable. 
Stults  v.  Silva,  119  Mass.  139;  Chouteau  v.  Allen,  70  Mo.  339, 
seem  to  hold  the  contrary- 

fSuch  a  note  must  state  the  times  or  dates  when  the  several 
installments  are  payable.  ( Tiedeman,  Com.  Paper,  Sec.  25d ; 
Moffat  v.  Edwards,  Car.  &  M.  16.) 


36  NEGOTIABLE    INSTRUMENTS. 

not  written  "on  or  before"  the  time,  are  not  due  until 
the  time  has  arrived,  and  the  holder  may  refuse  to  re- 
ceive payment  sooner.  Building  associations  are  re- 
quired by  statute  in  some  States  to  release  notes  before 
due  upon  stated  terms.  (Rev.  Stat.  Ohio,  Sec.  3836-3.) 
Sec.  767.  MUST  CONTAIN  WORDS  OF  NE- 
GOTIABILITY.— Another  essential  or  requisite  of 
negotiable  paper  is  the  set  of  words  which  from  the 
first  introduction  of  these  instruments  have  been  used 
to  distinguish  them  from  non-assignable  contracts.! 
These  words,  as  commonly  employed,  are  "order," 
"bearer,"  "assigns,"  and  the  like,  placed  after  the  name 


f  "When  bills  of  exchange  first  came  into  use,  .  .  .  choses 
in  action  were  in  general  non-assignable;  and  in  order  that 
the  intention  of  the  parties,  to  make  commercial  paper  assign- 
able and  negotiable,  may  be  indicated,  it  became  the  custom  to 
make  it  in  express  terms  payable  to  A  or  order,  or  bearer,  or 
using  like  words  conveying  an  authority  to  transfer  it.  So, 
also,  when  promissory  notes  were  by  the  statute  of  Anne  de- 
clared to  be  negotiable,  like  bills  of  exchange,  the  notes  which 
would  fall  within  the  statute  were  described  as  containing  these 
or  other  words  of  negotiability.  It  has  in  consequence  become 
the  universal  opinion  that  in  order  that  negotiable  paper  may 
be  negotiable  and  the  indorscrs  be  held  liable  as  guarantors  by 
the  holder  of  the  paper,  it  must  contain  these  or  like  words  of 
negotiability.  Without  these  words  of  negotiability,  the  as- 
signee of  the  bill  and  note  would  acquire  only  a  right  of  action 
against  his  immediate  indorscr,  and  according  to  the  early  com- 
mon law  he  could  not  maintain  an  action  on  it  against  the  maker 
or  the  drawer  and  acceptor."  (Ticdcman,  Com.  Paper,  Sec.  21. 
See  also,  Rex  v.  Box,  6  Taunt.  328;  Maule  v.  Crawford,  14 
Hun  193;  Warren  v.  Scott,  32  la.  22;  Rev.  Stat.  Ohio,  Sec. 
3171.) 


ESSENTIALS    OF    BILLS    AND    NOTES.  37 

of  the  payee  to  indicate  the  intention  of  the  parties  that 
the  instrument  shall  be  transferable.  By  long  usage  and 
custom  these  or  a  similar  expression  have  become  an 
essential  of  a  negotiable  paper,  though  the  change  in 
the  law  as  respects  the  assignment  of  contracts,  would 
seem  to  make  it  unnecessary  to  employ  words  to  indi- 
cate that  the  contract  can  be  assigned,  as  all  choses  in 
action  are  now  assignable. 

Now  by  statute  in  the  various  States,  as  well  as  by 
decisions  the  words  of  negotiability  are  essential  if  the 
paper  is  to  be  negotiable,  though  it  is  a  good  and  valid 
contract  without  these  words.  ( Story  on  Bills,  Sec.  60 ; 
Michigan  Bank  v.  Eldred,  9  Wall.  544.) 

Sec.  768.  SAME  SUBJECT— WORDS  OF  NE- 
GOTIABILITY, EXAMPLES  OF.— At  first  it  was 
the  inclination  of  the  courts  to  be  strict  in  regard  to 
words  expressing  negotiability,  and  an  early  case  held 
that  a  paper  payable  to  a  person  or  bearer  was  not  ne- 
gotiable. (Hodges  v.  Steward,  1  Salk.  125.)  But  it 
is  now  well  settled  that  such  an  instrument  is  negotiable, 
and  that  no  special  or  exact  form  of  words  is  required 
to  indicate  the  negotiability  of  the  paper.  (Tiedeman, 
Com.  Paper,  Sec.  22.)  The  expression,  payable  "to 
the  order  of  A.  B.,"  is  considered  of  the  same  effect  as 
"to  A.  B.,  or  order."  (Smith  v.  McClure,  5  East  476; 
Durgin  v.  Bartol,  64  Me.  473.)  But  a  note  payable  "to 
the  bearer  A."  is  held  non-negotiable.  (Warren  v. 
Scott,  32  la.  22.)  It  is  held  that  while  the  words  "order" 
or  "bearer"  are  convenient  and  expressive  terms  to  indi- 
cate negotiability,  they  are  not  the  only  words  that  are 


38  NEGOTIABLE    INSTRUMENTS. 

sufficient  to  give  the  paper  this  transferable  quality,  and 
instruments  payable  to  a  person  or  holder,  or  assigns, 
and  the  like,  have  been  held  negotiable.* 

Sec.  769.  CONCERNING  THE  CONSIDERA- 
TION FOR  THE  NOTE  OR  BILL.— Walker 
gives  as  the  sixth  essential  of  a  negotiable  instrument 
that  it  must  import  a  consideration,  so  as  to  preclude 
the  necessity  of  inquiry  and  proof.  (Am.  Law,  Sec. 
180.)  This  statement  does  not  mean  that  the  considera- 
tion must  be  stated  in  the  paper,  or  that  as  between  the 
original  parties  the  question  of  consideration  can  never 
be  raised.  The  words  so  commonly  used  in  notes  and 
bills,  "for  value  received,"  are  not  essential  to  the  nego- 
tiability of  the  instrument,  a  consideration  for  the  mak- 
ing or  transfer  is  presumed,  but  as  between  the  imme- 
diate parties  it  may  be  shown  that  there  was  no  consid- 
eration given,  and  this  whether  the  words  "for  value 
received"  are  used  or  not.  But  holders  of  negotiable 
instruments  who  are  not  original  parties,  and  who  have 
taken  paper  in  the  usual  course  of  business  are  j)rotected 
against  a  failure  of  the  consideration  between  prior  par- 
ties. (Riley  v.  Johnson,  8  Ohio  520;  Conklin  v.  Vail, 
31  111.  166;  Jordan  v.  Pate,  19  O.  St.  586.)  And  under 
certain  circumstances  to  be  discussed  later  the  maker 


•Raymond  v.  Middlcton,  29  Pa.  St.  530;  Wilson  County  v. 
Natl.  Bank,  103  U.  S.  776;  Douglass  v.  Wilkeson,  6  Wend.  637. 

In  construing  the  State  statute  in  Illinois  it  is  held  that  a 
note  payahle  to  a  person  or  bearer  is  not  negotiable.  (Garvin 
v.  Wiswell,  83  111.  218.) 


ESSENTIALS    OF    BILLS    AND    NOTES.  39 

of  a  note  or  bill  or  bond  is  precluded  from  showing  a 
want  or  failure  of  consideration.* 

Sec.  770.  CONCERNING  THE  PLACE  OF 
PAYMENT. — The  name  of  the  town  or  place  where 
commercial  paper  is  executed  is  customarily  written  with 
the  date  as  in  the  forms  given:  "Conneaut,  Ohio,"  etc., 
but  this  does  not  make  it  the  duty  of  the  holder  to  go 
to  the  place  mentioned  to  demand  payment.  The  con- 
tract being  construed  according  to  the  laws  where  made, 
this  mention  of  the  place  of  execution  is  evidence  tend- 
ing to  show  by  what  law  the  parties  meant  to  be  gov- 
erned. It  may  also  be  stated  in  the  body  of  the  instru- 
ment that  the  payment  shall  be  made  at  a  given  place, 
and  it  is  held  that  the  holder  need  not  make  demand  at 
the  named  place  to  render  the  maker  or  acceptor  liable 
for  non-payment,  unless  it  is  made  payable  at  the  given 
place  "only  and  not  elsewhere."  (Cox  v.  Natl.  Bank, 
100  U.  S.  714;  Hills  v.  Place,  48  N.  Y.  520.)  But  if 
the  place  of  payment  is  expressly  stated  in  the  instru- 
ment the  holder  must  make  demand  at  this  place  in 
order  to  hold  indorsers  and  others  secondarily  liable  on 
the  instrument.  (Bank  of  the  U.  S.  v.  Smith,  11  Wheat. 
17L)  And  by  statute  in  some  States  it  is  made  a  requi- 
site to  the  negotiability  of  a  note  or  bill  that  the  place 
of  payment  must  be  specified  in  the  body  of  the  instru- 

*By  the  law  merchant  words  importing  consideration  received 
were  deemed  essential  to  bills  of  exchange,  but  they  are  not 
necessary  now  in  negotiable  instruments  in  the  United  States, 
unless,  as  in  Missouri,  the  State  statute  requires  the  words  "value 
received"  to  be  inserted  in  all  promissory  notes.  (Tiedeman, 
Com.  Paper,  Sec.  31 ;  Bailey  v.  Smock,  61  Mo.  213.) 


40  NEGOTIABLE    INSTRUMENTS. 

ment.  In  the  absence  of  a  statute  to  this  effect  the  place 
of  payment  need  not  be  stated  in  the  paper.  (Romin- 
ger  v.  Keyes,  73  Ind.  376;  Oates  v.  Natl.  Bank,  100  U. 
S.  239;  Tiedeman,  Com.  Paper,  Sec.  30.) 

Where  no  place  of  payment  is  mentioned  in  the  paper, 
it  is  payable  at  the  place  of  business  of  the  maker  or 
acceptor  or  at  his  residence  in  case  he  has  no  place  of 
business.  But  in  case  the  note  is  made  payable  at  a 
named  place  it  is  best  to  make  the  demand  at  the  place 
stated,  though  it  is  not  absolutely  necessary  to  hold  the 
maker  or  acceptor. 

Sec.  771.  THE  EFFECT  OF  A  SEAL.— An 
instrument  under  seal,  though  possessing  all  essential 
features  of  commercial  paper,  is  not  negotiable  in  the 
absence  of  a  statute  authorizing  it.  The  rule  grows  out 
of  the  fact  that  by  the  law  merchant  the  custom  was  to 
execute  commercial  paper  without  seals,  and  also  that 
the  common  law  forbade  the  assignment  of  sealed  in- 
struments, hence  the  seal  is  held  to  indicate  an  intention 
that  the  instrument  shall  not  be  negotiated.  The  rule 
formerly  applied  to  the  paper  of  a  corporation  executed 
under  the  corporate  seal,  but  the  tendency  at  present 
is  to  hold  such  paper  negotiable  on  the  ground  that  the 
seal  of  a  corporation  does  not  of  itself  indicate  an  intent 
to  execute  a  specialty.  (Tiedeman,  Com.  Paper,  Sec. 
32;  Rand  v.  Dovey,  83  Pa.  St.  280.) 

Sec.  772.  WITNESSES,  DELIVERY,  ETC.^- 
It  has  been  seen  in  a  previous  section,  that  the  signa- 
ture of  the  maker  need  not  be  attested  by  a  witness 
even  when  the  signature  is  by  mark.     Such  witness  is 


ESSENTIALS    OF    BILLS    AND    NOTES.  41 

only  a  help  in  proving  the  execution,  and  may  be  re- 
placed by  other  competent  evidence.  Where  there  is 
such  a  witness  he  must  be  called  to  prove  the  execution 
of  the  paper  unless  he  cannot  be  produced,  when  the 
execution  may  be  shown  by  proof  of  the  witness'  signa- 
ture.    (Tiedeman,  Sec.  33;  Greenleaf  on  Ev.,  Sec.  575.) 

There  must  be  a  delivery  of  the  instrument  to  the 
payee  to  make  it  binding  on  the  maker  or  drawer.  Until 
delivered  it  is  of  no  effect  and  is  considered  a  nullity. 
(Roberts  v.  Bethel,  12  C.  B.  778.)  By  delivery  is  meant 
the  actual  or  constructive  transfer  of  the  instrument  to 
the  payee.  When  an  actual  transfer  of  the  paper  is 
made  to  the  payee  no  question  can  arise  as  to  its  suffi- 
ciency, but  where  the  paper  is  given  to  an  agent  to  be 
delivered  to  the  payee  it  may  be  recalled  by  the  maker 
at  any  time  before  delivery.  (Devries  v.  Shumate,  53 
Md.  216.).  Where  the  custodian  of  the  instrument  is 
instructed  to  hold  it  for  the  payee  or  to  deliver  to  him 
or  his  indorsee,  it  is  held  a  sufficient  constructive  delivery. 
(Fisher  v.  Bradford,  7  Greenl.  28.)  The  delivery  may 
be  made  to  the  payee,  or  to  any  person  for  his  benefit 
with  his  consent.  It  may  be  sent  to  the  payee  by  post, 
and  if  done  with  his  express  or  implied  consent  consti- 
tutes a  good  delivery  though  lost  in  the  mail.  While  in 
transit  to  the  payee,  a  maker  or  indorser  may  exercise 
the  right  of  stoppage  in  transitu  under  the  rules  applica- 
ble to  the  case  of  vendor  and  vendee. 

A  bona  fide  holder  of  an  instrument  is  not  protected 
in  case  there  has  been  no  delivery  to  the  payee.  (Rich- 
ards v.  Darst,  51  111.  141;  Freeman  v.  Ellison,  37  Mich. 


42  NEGOTIABLE    INSTRUMENTS. 

459.)  The  paper  becomes  operative  only  from  the  time 
of  its  delivery,  and  if  a  date  is  stated  in  the  paper  the 
delivery  is  presumed  to  be  made  on  that  date,  and  before 
the  day  of  maturity.  But  parol  evidence  is  admissible 
to  show  the  true  date  of  delivery,  and  this  governs,  unless 
the  instrument  is  written  to  mature  at  a  certain  time 
after  date,  when  it  will  be  considered  as  operating  from 
the  day  of  the  date.  (Tiedeman,  Com.  Paper,  Sec.  34b; 
Powell  v.  Waters,  8  Cow.  669;  Lovejoy  v.  Whipple,  18 
Vt.  379.) 

By  the  common  law  there  is  no  prohibition  of  the 
making  of  contracts  or  doing  work  on  Sunday,  or  the 
first  day  of  the  week;  but  in  most  of  the  States  there 
are  statutes  forbidding  all  labor  on  this  day  and  inval- 
idating all  contracts  made  on  it.  The  execution  and 
indorsement  of  negotiable  paper  comes  within  these  stat- 
utes, and  no  suits  can  be  brought  on  paper  so  made 
or  indorsed.*  But  the  paper  may  be  dated  and  formu- 
lated on  Sunday,  and  will  be  valid  if  delivered  on  some 
other  day.  (Drake  v.  Rodgers,  32  Me.  524.)  And 
paper  made  and  delivered  on  Sunday  may  be  subse- 
quently re-delivered  and  so  ratified  as  to  make  it  valid 
or  authorize  the  recovery  of  the  consideration  for  which 
it  was  given.     (Sayre  v.  Wheeler,  31  la.  112.)  f 

*Tiedeman,  Com.  Paper,  Sec.  34c;  Benson  v.  Drake,  55  Me. 
555;  State  Capital  Bank  v.  Thompson,  42  N.  H.  370;  Smith 
v.  Case,  2  Ore.  190. 

f"The  court  will  take  judicial  notice  of  the  fact  that  the  date 
of  the  paper  is  a  Sunday,  and  all  parties  to  the  contract  are 
charged  with  notice  of  that  fact.  Where,  however,  the  paper 
is  delivered  on  Sunday,  but  bears  a  different  date,  the  paper  is 


ESSENTIALS    OF    BILLS    AND    NOTES.  43 

Negotiable  paper  may  be  delivered  as  an  "escrow," 
by  which  is  meant  that  it  shall  be  held  by  some  one 
subject  to  the  performance  of  a  certain  condition,  and 
then  be  delivered  to  the  payee.  In  the  case  of  a  deed 
delivered  as  an  escrow  it  must  be  held  by  a  stranger, 
and  not  by  the  grantee  if  it  is  to  operate  as  an  escrow. 
And  except  in  New  York  this  rule  is  held  to  apply  to 
commercial  paper.  In  the  case  of  Benton  v.  Martin 
(52  N.  Y.  574),  it  was  stated  that  negotiable  paper 
might  be  delivered  to  the  payee  subject  to  a  condition, 
"the  observance  of  which  is  essential  to  their  validity." 
And  in  other  cases  it  is  held  that  a  second  delivery  to 
the  payee  or  indorsee  is  not  necessary  when  commercial 
paper  is  deposited  as  an  escrow.  (Taylor  v.  Thomas,  13 
Kans.  217;  1  Daniel's  Negot.  Inst.,  Sec.  68.) 

Sec.  778.  THE  EFFECT  OF  NOTES  AND 
BILLS  EXECUTED  IN  BLANK.— It  is  not  un- 
usual for  a  person  wishing  to  secure  a  loan  on  his  note 
or  bill  to  obtain  the  signature  of  persons  as  accommoda- 
tion makers  to  sign  the  bill  or  note  in  blank,  or  to  affix 
their  signature  to  a  blank  paper  with  authority  to  fill  up 
the  blank  as  a  bill  or  note  in  a  certain  amount.  Such 
instruments  are  held  to  be  binding  upon  the  parties  who 

only  void  as  to  those  parties  who  take  it  with  knowledge  of  the 
illegality.  An  indorsee  for  value,  and  without  notice  of  its  de- 
livery on  Sunday,  will  take  a  negotiable  paper  free  from  the 
defense  of  illegality."  (Tiedeman,  Com.  Paper,  Sec.  34c;  Pope 
v.  Linn,  50  Me.  84;  Cranson  v.  Goss,  107  Mass.  439;  Ball  v. 
Powers,  62  Ga.  757.     Contra,  Parker  v.  Pitts,  73  Ind.  598.) 

In  Ohio,  commercial  paper  is  valid  though  executed  on  Sun- 
day.    (Bloom  v.  Richards,  2  Ohio  St.  387.) 


44  NEGOTIABLE    INSTRUMENTS. 

have  signed  them,  and  to  constitute  a  general  letter  of 
credit  to  any  person  who  takes  it  without  knowledge 
of  limitations  or  conditions  imposed,  and  pays  value  for 
it.  In  the  absence  of  knowledge  of  the  limitation  of 
his  authority  the  party  to  whom  such  a  paper  is  entrusted 
is  presumed  to  have  implied  authority  to  fill  up  the 
blanks  and  perfect  the  instrument,  and  the  parties  who 
have  so  signed  are  bound  though  the  paper  is  executed 
for  a  greater  amount  than  was  intended.* 

Sec.  774.  WORDS  SUFFICIENT  TO  CON- 
STITUTE THE  PROMISE.— It  is  not  necessary 
that  the  words  expressing  the  obligation  to  pay  be  con- 
fined to  any  particular  form  or  expression.  Thus  a 
promise  to  "deliver,"  to  be  "accountable,"  to  be  "respon- 
sible," and  the  like,  have  been  held  sufficient  promises 
to  pay  the  amount  stated  in  the  note.  And  where  the 
expression  used  was  "Borrowed  of  A.  B.  fifty  dollars, 
which  I  agree  never  to  pay  him,  or  order,"  it  was  held 
that  the  word  "never"  should  be  rejected  as  surplusage, 
and  the  amount  be  deemed  payable  on  demand.  And 
the  expressions,  "I  have  agreed  to  pay,"  "I  acknowledge 
to  owe,"  "I  am  content  to  pay,"  and  the  like,  have  been 
held  sufficient  in  a  bond.f 

•Pittsburg  v.  Ncal,  22  How.  107;  Bank  v.  Smith  et  al.,  5 
Ohio  222 ;  Schryver  v.  Hankes,  22  Ohio  St.  308 ;  White  v.  Ver- 
mont, etc.,  R.  R.  Co.,  21  How.  575.  But  by  the  weight  of 
authority  an  agent  cannot  by  parol  authority  thus  fill  up  blanks 
in  a  bond  or  deed  under  seal  and  must  have  authority  under 
seal  to  do  so,  or  the  delivery  must  be  made  by  the  maker  himself. 
(Tiedeman,  Com.  Paper,  Sec.  35.) 

f  Swan's  Treatise,  15th  ed.,  p.  696. 


ESSENTIALS    OF    BILLS    AND    NOTES.  45 

In  a  bill  of  exchange  the  words  used  must  create  a 
distinct  and  certain  obligation  to  pay  the  amount  men- 
tioned, but  the  expression  "please  pay"  used  in  a  bill 
directed  to  the  drawee  is  considered  a  mere  civility  and 
does  not  destroy  the  effect  of  the  order  or  command  to 
the  drawee.  But  a  supplicatory  request  to  another,  the 
granting  of  which  is  a  favor  and  not  a  right,  does  not 
constitute  a  bill  of  exchange,  unless  the  words  of  com- 
mand are  indicated  by  the  use  of  words  of  negotiability.* 

The  expression  "pay"  in  a  note  or  bill,  may  be  re- 
placed by  the  equivalent  expression  "deliver,"  "credit 
in  cash,"  and  the  like.  (Morris  v.  Lee,  2  Ld.  Raym. 
1396.)  In  a  note  the  certain  promise  to  pay  may  be 
indicated  by  any  series  of  words  that  constitute  a  prom- 
ise, and  in  a  number  of  States  a  due  bill,  or  acknowl- 
edgment of  an  existing  indebtedness  is  held  to  be  a 
promissory  note,  and  especially  when  followed  by  words 
of  negotiability.! 

*Tiedeman,  Com.  Paper,  Sec.  23;  Little  v.  Slackford,  1  M. 
&  M.  371 ;  Ruff  v.  Webb,  1  Esp.  R.  129. 

f Brady  v.  Chandler,  31  Mo.  28;  Carver  v.  Hayes,  47  Me. 
257 ;  Smith  v.  Allen,  5  Day  337.  But  the  contrary  doctrine  in 
regard  to  due  bills,  or  "I.  O.  U.s"  is  held  in  England  and  some 
of  the  States,  they  being  considered  insufficient  as  promissory 
notes.  (Fesenmayer  v.  Adcock,  16  M.  &  W.  449;  Currier  v. 
Lockwood,  40  Conn.  348.) 


CHAPTER  III. 

TILE  PAltTIES. 

Sec.  775.  IN  GENERAL.— Negotiable  contracts, 
in  general,  are  governed  by  the  same  rules  which  apply 
to  all  contracts  as  regards  the  capacity  of  the  parties 
to  enter  into  the  contract  or  assume  the  obligation. 
Hence  we  shall  merely  observe  at  this  time  that  infants, 
insane  persons,  married  women,  under  the  rules  of  the 
common  law,  and  alien  enemies  are,  as  a  rule,  incapable 
or  making,  accepting,  or  indorsing  a  bill  or  note;  and 
paper  executed  by  such  persons  is  either  void  or  void- 
able. But,  on  the  other  hand,  it  is  not  only  competent 
individuals  who  may  become  parties  to  commercial  pa- 
per. Negotiable  instruments  may  be  executed  and 
transferred  by  a  firm  or  partnership,  by  public  and  pri- 
vate corporations,  and  by  one  person  acting  for  another 
as  an  agent.* 

Sec.  77G.  COMMERCIAL  PAPER  OF  AN 
INFANT  CONSIDERED.— An  infant's  contracts 
are  now  generally  regarded  as  voidable  rather  than  void, 
and  except  in  the  case  of  necessaries,  the  infant  may  dis- 
affirm any  contract  into  which  he  has  entered.!  While 
this  is  true  of  most  of  the  contracts  entered  into  by  an 


*See  Vol.  4,  Cyclopedia  of  Law,  Sees.  452-458. 
f  See  Vol.  3,  Cyclopedia  of  Law,  Sec.  378. 

4b" 


THE    PARTIES.  47 

infant,  it  is  quite  generally  held  in  the  case  of  nego- 
tiable paper  made,  accepted  or  indorsed  by  an  infant, 
that  the  instrument  is  not  only  voidable  but  absolutely 
void.  (Conn  v.  Coburn,  7  N.  H.  3G8;  Morton  v.  Stew- 
ard, 5  111.  App.  533.)  Other  authorities  maintain  that 
while  the  note  or  bill  made  by  an  infant  is  not  negotiable 
so  as  to  preclude  inquiries  when  in  the  hands  of  a  bona 
fide  holder,  the  holder  of  such  paper  is  subrogated  to 
the  rights  of  the  original  payee,  and  may  recover  in  the 
name  of  the  payee  the  original  consideration  for  the 
paper.  (Tiedeman,  Com.  Paper,  Sec.  48.)  When  the 
instrument  has  been  given  for  necessaries  for  the  infant, 
the  holder  is  entitled  to  recover  the  value  of  the  articles 
supplied. 

A  note  or  bill  made  payable  to  an  infant  is  valid, 
and  may  be  enforced  by  the  infant  against  the  maker 
or  acceptor,  since  the  privilege  of  avoiding  the  contract 
lies  with,  and  is  for  the  benefit  of  the  infant.  But  pay- 
ment to  the  infant  payee  will  not  protect  the  payor 
unless  made  through  the  infant's  guardian.  (Phillips 
v.  Paget,  2  Ark.  80.)  If  the  infant  payee  indorse  the 
note  or  bill,  the  maker  or  acceptor  is  bound  to  pay  the 
indorsee,  as  the  drawing  of  the  paper  payable  to  an  in- 
fant estops  them  from  denying  his  capacity  to  indorse 
the  paper.  The  infant,  however,  not  being  bound  by 
his  indorsement  may  choose  to  disaffirm  it,  and  by  re- 
turning the  consideration  received,  compel  the  maker 
or  acceptor  to  pay  him,  although  the  money  has  already 
been  paid  to  the  indorsee;  or  the  infant  may  disaffirm 
the  indorsement,  notify  all  the  parties,  and  if  payment 


48  NEGOTIABLE    INSTRUMENTS. 

has  not  been  made  to  the  indorsee,  destroy  his  title  to 
the  paper.* 

The  Infant  on  coming  of  age,  may  ratify  commercial 
paper  executed  or  indorsed  by  him  during  his  infancy, 
and  such  paper  then  becomes  valid  and  binding,  and 
may  be  enforced  by  any  holder.  No  consideration  is 
required  for  such  ratification,  but  there  should  be  a  new 
promise  to  pay.  This  promise  need  not  be  formal  or 
in  writing,  it  may  be  made  orally  and  in  any  form  of 
words.  (Owis  v.  Kimball,  3  N.  H.  314;  Martin  v. 
Mayo,  10  Mass.  137.) 

Sec.  777.  COMMERCIAL  PAPER  OF  IN- 
SANE PERSONS  CONSIDERED.— Any  person 
mentally  deficient,  as  a  lunatic,  imbecile,  drunken  per- 
son, and  the  like,  cannot  make  a  contract  binding  upon 
them  during  the  period  of  such  incompetency.  One 
ignorant  of  the  insanity  of  a  person  with  whom  he 
contracts  and  who  has  acted  in  good  faith  and  taken  no 
advantage  will  be  protected,  and  for  necessaries  a  luna- 
tic may  bind  himself  upon  a  bill  or  note.  (Moore  v. 
Hershey,  90  Pa.  St.  196;  Williams  v.  Wentworth,  5 
Beav.  325.)  Such  persons,  however,  may  be  payees  of 
bills  or  notes  and  may  compel  payment  to  them  or  a 
return  of  the  consideration.  As  payees  they  may  in- 
dorse the  paper  and  the  indorsee  may  recover  of  the 
maker  or  acceptor,  who  is  estopped  from  denying  ca- 
pacity to  indorse  if  the  payee  was  incompetent  when  the 

*Melburg  v.  Watrous,  7  Hill  110;  Bool  v.  Mix,  17  Wend. 
119;  Taylor  v.  Crokcr,  4  Esp.  187;  Hardy  v.  Waters,  38  Me. 
450. 


THE    PARTIES.  49 

paper  was  executed.  (Tiedeman,  Com.  Paper,  Sec. 
56.)  But,  as  a  rule,  these  contracts  are  considered  void- 
able rather  than  void,  and  may  be  ratified  or  disaffirmed 
by  the  party  when  he  recovers,  or  by  his  guardian  or 
representatives.* 

Sec.  778.  COMMERCIAL  PAPER  OF  MAR- 
RIED WOMEN  CONSIDERED.— "According  to 
the  common  law,  a  married  woman  cannot  make  or  ac- 
cept or  indorse  a  commercial  instrument,  and  her  at- 
tempted execution,  acceptance  or  indorsement  of  such 
an  instrument  is  absolutely  void."f  But  modern  stat- 
utes in  the  various  States  have  modified  the  common 
law  in  regard  to  the  contracts  of  married  women,  and 
under  these  statutes  married  women  may  execute  valid 
commercial  paper. t 

All  negotiable  instruments  of  the  wife  are  held  to 
be  choses  in  action,  and  at  the  common  law  a  married 

*Campbell  v.  Kuhn,  45  Mich.  513;  Halley  v.  Froester,  72 
Mo.  73 ;  Calkins  v.  Fry,  35  Conn.  170. 

jTiedeman,  Com.  Paper,  Sec.  59.  But  at  the  common  law 
if  the  husband  of  the  married  woman  was  an  alien  enemy,  or 
was  otherwise  unable  to  aid  the  wife,  as  in  case  he  was  impris- 
oned, banished  or  had  entered  a  monastery,  then  the  wife  might 
make  valid  commercial  paper.  As  a  sole  trader  she  could  also 
make  any  contract  necessary  to  such  separate  business.  (Abbott 
v.  Bailey,  6  Pick.  89;  Hatchet  v.  Baddeley,  2  W.  Bl.  1079;  2 
Kent  Com.  136.) 

$See  Vol.  3  Cyclopedia  of  Law,  Sees.  327-328;  Camden  v. 
Mulen,  29  Cal.  566.  So  in  regard  to  property  granted  to  a 
married  woman  to  her  sole  and  separate  use,  known  as  her  equita- 
ble estate,  she  may  make  valid  commercial  paper.  (Todd  v.  Lee, 
15  Wis.  365;  Williams  v.  Urmston,  35  Ohio  St.  296.) 


50  NEGOTIABLE    INSTRUMENTS. 

woman  could  not  pass  title  to  such  instruments  by  de- 
livery or  indorsement,  though  she  was  the  named  payee, 
unless  the  husband  also  consented.  (Barlow  v.  Bishop, 
1  East  432.)  The  husband  could  indorse  the  paper  and 
pass  title,  or  could  sue  upon  it  by  joining  with  the  wife. 
(  Mason  v.  Morgan,  2  Ad.  &  El.  30;  Richards  v.  Rich- 
ards, 2  B.  &  Ad.  447.)  Also  by  the  common  law,  the 
husband  was  required  to  reduce  the  wife's  choses  in 
action  to  possession,  and  unless  he  did  so,  at  his  death 
they  became  the  absolute  property  of  the  widow  and  not 
of  the  husband's  personal  representatives.  (Gaters  v. 
Madely,  6  M.  &  W.  423;  Draper  v.  Jackson,  16  Mass. 
480.)  Now  the  property  rights  of  married  women  are 
regulated  by  statute  in  the  various  States,  and  the  rules 
of  the  common  law  are  greatly  modified  if  not  entirely 
abrogated.  Under  the  modern  statutes  of  distribution 
the  husband  who  has  not  reduced  the  wife's  choses  in 
action  to  possession  during  her  life,  takes  only  his  dis- 
tributive share  after  her  death.  (Tiedeman,  Com. 
Paper,  Sec.  64.) 

Sec.  779.  AN  ALIEN  ENEMY  CANNOT  BE 
A  PARTY  TO  COMMERCIAL  PAPER.— Every 
bill  or  note  attempted  to  be  negotiated  between  parties 
whose  respective  countries  are  at  war  with  each  other, 
is  void,  and  cannot  be  enforced  during  or  after  the 
close  of  hostilities.  (Ward  v.  Smith,  7  Wall.  447.) 
The  two  hostile  countries  are  deemed  sealed  to  each  other 
so  as  to  prevent  all  commercial  intercourse.  ( 1  Daniel's 
Negot.  Inst.,  Sec.  220.) 


THE    PARTIES.  51 

Sec.  780.  PARTNERS  AS  PARTIES  TO 
COMMERCIAL  PAPER.— The  subject  of  Partner- 
ship has  been  treated  in  a  previous  number  of  the  Cy- 
clopedia of  Law,  to  which  the  student  is  referred  at 
this  time.*  The  rights  and  liabilities  of  the  partners  to 
validly  executed  firm  paper  was  fully  discussed  in  the 
previous  volume,  and  it  is  only  necessary  at  this  time 
to  again  point  out  the  fact  that  the  partners  only  have 
implied  power  to  make  and  negotiate  commercial  paper 
in  case  the  firm  is  a  trading  partnership,  or  one  whose 
business  necessitates  the  use  of  commercial  paper.  If 
it  comes  within  the  nature  and  scope  of  the  firm's  busi- 
ness to  issue  negotiable  paper,  any  partner  may  bind 
the  firm  by  making  or  accepting  a  note  or  bill,  though 
the  proceeds  are  for  his  own  benefit  if  the  holder  of  the 
paper  was  not  a  party  to  the  fraud.f 

Where  the  business  of  the  firm  is  not  of  the  character 
to  imply  such  authority,  that  is,  where  the  firm  is  re- 
garded as  a  non-trading  firm,  commercial  paper  issued 
in  the  name  of  the  firm  by  one  partner  will  not  bind  the 
other  partner.     (Dickenson  v.  Valpy,  10  B.  &  C.  128.) 

A  partner  cannot,  however,  under  his  implied  powers, 


*Vol.  4,  Cyclopedia  of  Law. 

f  Illustration :  Where  X,  a  partner  in  a  trading  firm,  makes 
a  note  in  the  firm  name,  payable  to  C  for  his  accommodation, 
or  as  surety  for  him,  without  the  knowledge  of  the  other  part- 
ners, the  firm  is  not  liable  to  C,  but  is  liable  to  a  bona  fide  holder 
of  the  note  for  value.  (Heffron  v.  Hanaford,  40  Mich.  305; 
Austin  v.  Vandermark,  4  Hill  259;  Chemung  Bank  v.  Bradner, 
44  N.  Y.  680.) 


52  NEGOTIABLE    INSTRUMENTS. 

issue  purely  accommodation  paper,  or  paper  for  his  own 
private  benefit,  and  for  a  purpose  unconnected  with  the 
business  of  the  firm.  If  such  paper  is  issued,  it  will  not 
bind  the  other  partners  until  it  has  passed  into  the  hands 
of  a  bona  fide  holder,  who  has  given  value  for  it  with- 
out notice  of  the  fraud  upon  the  other  partners.  (At- 
lantic St.  Bank  v.  Savery,  82  N.  Y.  294;  Burke  v. 
Wilbur,  42  Mich.  329.)  This  is  the  result  of  the  rule 
of  negotiability  which  applies  when  the  indorsee  shows 
that  the  paper  bearing  the  firm  name  was  taken  by  him 
without  knowledge  of  its  improper  issue  and  for  value. 
(Monroe  v.  Copper,  5  Pick.  412.) 

The  proper  form  of  signing  the  firm  name  to  any 
contract  made  by  a  partner  is  to  write  the  firm  name 
and  nothing  else.  It  is  permissible  but  unnecessary 
to  write  the  name  of  the  partner  after  the  firm  signa- 
ture. It  is  held  to  be  a  good  firm  signature  to  write 
all  the  names  of  the  partners  without  using  the  part- 
nership name.  (Maynard  v.  Fellows,  43  N.  H.  255.) 
If  there  is  a  material  variance  in  the  firm  name  as  used 
by  the  partner  in  signing  the  note  or  bill  the  firm  will 
not  be  bound  as  where  the  firm  name  is  that  of  an  indi- 
vidual and  the  note  is  signed  in  the  name  of  the  indi- 
vidual with  the  addition  of  "&  Co."  (Kirk  v.  Blurton, 
9  M.  &  W.  284.)  And  it  must  appear  upon  the  face 
of  the  paper  that  it  is  a  firm  obligation  if  the  firm  is 
to  be  bound.     (Gallway  v.  Mathew,  10  East  264.) 

In  case  a  bill  is  payable  to  the  order  of  the  firm  and 
the  partnership  is  subsequently  dissolved  the  indorse- 
ment of  an  ex-partner  in  the  firm  name  transfers  the 


THE    PARTIES.  53 

property  therein  and  authorizes  the  payment  thereof. 
(Benjamin's  Chalmers,  Article  80.) 

Sec.  781.  CORPORATIONS  AS  PARTIES  TO 
COMMERCIAL  PAPER.— Corporations  are  either 
private  or  public.  The  distinction  being,  that  in  the 
former  a  few  individuals  own  and  control  the  franchises 
and  property  of  the  corporation,  while  in  the  latter  the 
interests  and  franchises  belong  to  the  general  public, 
or  people  composing  the  district  which  the  corporation 
covers.  The  former  is  managed  for  private  gain,  the 
latter  for  public  service  and  advantage.  It  is  said  that 
private  corporations  are  organized  to  prosecute  private 
interest  or  business  as  distinguished  from  governmental 
or  public  undertakings. 

A  corporation  derives  its  authority  from  its  charter; 
it  can  incur  no  liability  by  drawing,  indorsing  or  ac- 
cepting a  bill,  unless  expressly  or  impliedly  empowered 
by  its  act  of  incorporation  so  to  do,  and  in  general  the 
capacity  of  a  corporation  to  bind  itself  by  a  bill,  is 
co-extensive  with  its  capacity  to  contract.  (Benj.'s 
Chalm.,  Art.  67;  Curtis  v.  Smith,  15  N.  Y.  66.)  Thus 
a  corporation  chartered  to  build  a  railroad,  may  bind 
itself  by  note  for  materials  used  in  constructing  the  road, 
but  could  not  accept  accommodation  paper  to  aid  an- 
other company  in  constructing  its  road.  ( Smead  v.  R. 
R.  Co.,  11  Ind.  104.)  A  bill  given  to  the  order  of  the 
corporation  transfers  the  property  therein,  though  from 
want  of  capacity  the  corporation  may  not  be  liable 
thereon  as  an  indorser.  (Brown  v.  Donnell,  49  Me. 
421.) 


54  NEGOTIABLE    INSTRUMENTS. 

See.  782.  SAME  SUBJECT-  BONA  FIDE 
HOLDERS. — As  against  original  parties  to  commer- 
cial paper  of  a  corporation  which  has  been  issued  ultra 
vires,  that  is,  without  authority,  the  corporation  may 
plead  its  lack  of  authority,  but  in  the  hands  of  bona  fide 
indorsees  for  value,  the  common  rule  of  negotiable  paper 
prevents  the  corporation  Prom  setting  up  this  defence. 
(Tiedeman,  Com.  Pap.,  Sec.  116.)  In  the  case  of  ac- 
commodation paper  this  ride  does  not  apply,  and  the 
paper  is  considered  void.  And  where  the  corporation 
has  expressly  declared  that  paper  issued  ultra  vires  shall 
be  void,  a  bona  fide  holder  gets  no  title. 

It  is  the  rule  of  law  that  commercial  paper  should 
not  be  issued  under  seal.  At  common  law  a  corporation 
could  not  make  a  binding  contract  without  using  its 
corporate  seal.  It  was  formerly  held  that  the  seal  de- 
stroyed the  negotiability  of  the  instrument,  but  the  rule 
is  now  relaxed,  and  the  commercial  paper  of  a  corpora- 
tion under  seal  is  negotiable,  and  further,  that  in  making 
commercial  paper  a  corporation  may  dispense  with  the 
use  of  its  corporate  seal.  (Barrett  v.  Schuyler  Co. 
Court,  44  Mo.  197;  Clark  v.  Iowa  City,  20  Wall.  583; 
Beaver  Co.  v.  Armstrong,  44  Pa.  St.  6.3.) 

A  corporation  has  the  implied  power  to  take  a  note 
or  bill  for  any  debt  due  it.  (Buckley  v.  Briggs,  30  Mo. 
452.)  But  in  order  to  make  a  regular  business  of  lend- 
ing money  and  taking  paper  of  the  borrower  the  power 
must  be  given  in  its  charter.  (Grand  Lodge  of  Free 
Masons  v.  Waddill,  36  Ala.  313.) 


THE    PARTIES.  55 

Sec.  783.  SAME  SUBJECT— A  CORPORA- 
TION ACTS  BY  ITS  AGENTS,  THEIR  POW- 
ERS.— The  power  to  appoint  agents  is  necessarily  im- 
plied as  the  corporation  can  only  act  through  its  agents 
and  officers.  The  power  is  general  and  unlimited  un- 
less expressly  denied.  But  an  agent  appointed  by  a 
corporation  must  have  express  authority  to  issue  notes, 
unless  his  position  is  such  as  by  general  custom  and 
usage  would  authorize  him  to  bind  the  corporation. 
(Odd  Fellows  v.  First  Natl.  Bank,  42  Mich.  463.) 

A  cashier  of  a  bank  has  implied  power  to  bind  his 
bank  by  putting  his  official  signature  to  commercial 
paper.  He  may  transfer  the  negotiable  paper  of  the 
bank;  give  the  bank's  note  for  borrowed  money;  accept 
bills  and  certify  checks  drawn  on  the  bank;  sell  notes 
and  bills  of  the  bank;  and  draw  bills  and  checks  on  the 
bank's  deposits.* 

The  president  of  a  corporation  also,  as  its  chief  execu- 
tive officer,  has  implied  power  to  represent  the  corpora- 
tion in  various  ways.  He  may  bring  suits  in  the  name 
of  the  corporation  (Alexandria  Canal  Co.  v.  Swann,  5 
How.  83),  and  in  case  of  a  banking  corporation 
he  may  receipt  for  deposits  and  do  other  acts  in  the 
ordinary  course  of  business  by  following  the  customary 
rules  of  the  institution.  (Sterling  v.  Marietta  Co.,  II 
Serg.  &  R.  170;  Foster  v.  Essex  Bank,  17  Mass.  479.) 
Neither  the  cashier  nor  president  of  a  bank  has  implied 
authority  to  release  any  claim  due  the  bank ;  this  power 
must  be  exercised  by  the  board  of  directors.     (Bank  of 

*Tiedeman,  Com.  Paper,  Sec.  120;  Morse  on  Banking,  164. 


56  NEGOTIABLE    INSTRUMENTS. 

U.  S.  v.  Dunn,  6  Pet.  51;  Olney  v.  Chadsey,  7  R.  I. 

225.) 

Other  officers  of  corporations,  as  secretary,  treasurer, 
etc.,  may  be  expressly  authorized  to  issue  commercial 
paper  for  the  corporation  or  they  may  have  such  power 
from  implication  by  reason  of  having  exercised  it  pre- 
viously. (Tiedeman,  Com.  Pap.,  Sec.  122.)  The  proper 
signature  of  a  corporation  by  an  agent  is  the  name  of 
the  corporation  followed  by  the  name  of  the  agent  mak- 
ing the  signature  with  his  official  designation.  But  this 
is  not  the  only  form  of  a  corporate  signature  which  will 
bind  the  corporation.  Where  the  name  of  the  corpora- 
tion appears  in  the  instrument  as  the  party  to  be  bound, 
and  is  signed  by  an  authorized  agent  of  the  corporation 
with  his  name  and  official  title,  it  is  held  a  good  cor- 
porate obligation.* 

So,  later  decisions  hold,  that  when  it  appears  from 
the  signature  of  the  agent  that  he  is  acting  in  a  repre- 
sentative capacity  for  the  corporation,  as  where  he  uses 
the  words  "on  account  of,"  "for  the  use  of,"  and  the 
like,  in  connection  with  the  name  of  the  corporation, 
it  will  be  considered  a  corporate  obligation.  (Lindud 
v.  Melrose,  3  H.  &  N.  177;  Dow  v.  Moore,  47  N.  H. 
419.) 

As  the  drawee  named  in  the  bill  is  the  only  one  who 
can  accept  it,  except  for  honor  supra  protest,  unless  the 
bill  is  drawn  upon  a  corporation  it  cannot  be  accepted 

*Commercial  Bank  v.  Newport  Mfg.  Co.,  1  B.  Monr.  13; 
Township  v.  Citizens'  Bank,  81  Ind.  515;  Tiedeman,  Com. 
Paper,  Sec.  123. 


THE    PARTIES.  57 

even  by  an  authorized  agent  for  the  corporation.  The 
principles  already  stated  govern  in  determining  whether 
the  bill  is  drawn  on  a  corporation  or  an  individual. 
(Walker  v.  Bank,  9  N.  Y.  582.)  In  making  acceptances 
or  indorsements  the  designation  of  the  drawee  and  payee 
indicate  the  correct  form  of  signature.  If  the  bill  is 
payable  to  an  individual  in  his  personal  capacity,  he 
cannot  make  the  corporation  an  indorser  by  affixing  its 
name,  if  liable  at  all  on  such  a  signature  it  would  be  as 
a  guarantor.  But  if  the  bill  or  note  is  properly  payable 
to  the  corporation,  an  indorsement  by  an  authorized  offi- 
cer using  his  own  signature  and  official  designation  will 
bind  the  corporation.  (Tiedeman,  Com.  Pap.,  Sec.  126.) 
Sec.  784.  PUBLIC  OR  MUNICIPAL  CORPO- 
RATIONS AS  PARTIES  TO  COMMERCIAL 
PAPER. — The  State  or  Federal  governments  as  cor- 
porations may,  by  their  duly  authorized  agents,  become 
parties  to  the  different  species  of  commercial  paj^er, 
either  as  drawer,  maker  or  acceptor.  (United  States  v. 
Bank,  15  Pet.  377;  State  ex  rel.  Plock  v.  Cobb.  64  Ala. 
156.)  But  as  the  ordinary  exercise  of  their  powers 
does  not  require  the  use  of  this  power,  the  courts  do  not 
recognize  any  officer  or  agent  of  the  government  as 
possessing  implied  power  to  bind  the  government  by 
making  or  accepting  commercial  paper.  The  authority 
to  make  or  accept  commercial  paper  in  order  to  bind  the 
government  must  be  expressly  granted  to  the  officer  by 
the  legislative  department  of  the  government  or  neces- 
sary to  carry  out  some  express  power.* 

*Floyd,  Acceptances,  7  Wall.  667.     In  this  case  it  was  held 


58  NEGOTIABLE    INSTRUMENTS. 

A  slight  distinction  is  sought  to  be  drawn  between 
public  corporations  and  municipal  corporations,  the  lat- 
ter having  reference  more  particularly  to  incorporated 
villages,  towns  and  cities.  (Dillon  Mun.  Corp.,  Sec. 
10.)  But  the  distinction  is  of  little  importance  as  the 
legislature  in  each  case  fixes  the  powers  of  these  cor- 
porations by  special  acts  or  general  laws. 

It  is  conceded  by  the  weight  of  authority  that  muni- 
cipal corporations  may  exercise  the  power  to  borrow 
money  as  an  implied  power,  though  not  expressly 
granted,  if  necessary  to  carry  out  the  purposes  for  which 
they  were  created.  (Williamsport  v.  Commonwealth, 
84  Pa.  St.  487;  City  of  Galena  v.  Corwith,  48  111.  423.) 
But  it  seems  that  the  weight  of  authority  would  deny 
them  the  right  to  issue  negotiable  paper  to  secure  such 
borrowed  money  unless  they  had  been  expressly  author- 
ized to  borrow.  It  being  claimed  that  it  is  not  neces- 
sary to  the  exercise  of  the  power  that  negotiable  securi- 
ties be  issued.  (Reinboth  v.  Pittsburg,  41  Pa.  St.  278; 
Railroad  Co.  v.  Evansville,  15  Ind.  395 ;  Mayor  v.  Ray, 


that  no  officer  of  the  United  States  government  has  the  implied 
authority  to  bind  the  government  by  his  acceptance  of  a  bill 
in  his  official  capacity,  although  it  can  be  shown  by  extraneous 
evidence,  as  well  as  on  the  face  of  the  bill,  that  the  bill  was 
accepted  in  order  to  provide  supplies  for  an  acknowledged  pub- 
lic purpose.  (Tiedeman,  Com.  Paper,  Sec.  132.)  Miller,  J., 
said  in  summing  up  the  case:  "We  are  of  the  opinion  that, 
as  there  can  be  no  lawful  occasion  for  any  department  of  the 
government,  or  for  any  of  its  officers  or  agents  to  accept  drafts 
drawn  on  them,  under  any  statute  or  other  law  known  to  us, 
such  acceptances  cannot  bind  the  government." 


THE    PARTIES.  59 

19  Wall.  476.)  Other  cases  hold  that  for  lawful  debts 
a  municipal  corporation  not  restricted  by  its  charter 
or  prohibited  by  statute,  may  issue  notes,  bills,  or  bonds, 
and  that  these  in  the  hands  of  bona  fide  holders  will  be 
free  from  equitable  and  other  defenses  not  appearing 
on  the  face  of  such  instruments  or  to  be  gathered  from 
the  ordinances  or  published  notices  in  reference  to  such 
securities.* 

Sec.  785.  SAME  SUBJECT— HOW  THE  COR- 
PORATION IS  BOUND,  SIGNATURE  OF 
AGENT. — As  the  common  council  is  the  legislature 
for  a  municipal  corporation,  it  must  authorize  the  execu- 
tion and  issue  of  municipal  obligations.  No  administra- 
tive or  executive  officer  of  the  municipality  has  implied 
power  to  issue  negotiable  securities,  and  must  be  ex- 
pressly authorized  so  to  do.  (Little  Rock  v.  State  Bank, 
3Eng.  (Ark.)  227.) 

Officers  of  the  government  and  other  public  corpora- 
tions are  not  held  to  the  same  rule  of  agency  by  which 
in  exceeding  their  authority  they  bind  themselves ;  every 
one  having  dealings  with  a  public  officer  is  supposed  to 
know  the  legal  limitations  of  his  agency,  so  that  when 
a  public  officer  in  innocent  mistake  of  the  law  makes  an 
unauthorized  contract  in  the  name  of  the  public  cor- 
poration neither  he  nor  the  corporation  is  bound. 
(Houston  v.  Clay  County,  18  Ind.  396;  Ogden  v.  Ray- 
mond, 22  Conn.  379.) 


*Tiedeman,  Com.  Paper,  Sec.  134  and  note;  Bank  of  Chilli- 
cothe  v.  Chillicothe,  7  Ohio  31 ;  Mullarkey  v.  Cedar  Falls,  19  la. 
21 ;  Clark  v.  Des  Moines,  19  la.  199. 


60  NEGOTIABLE    INSTRUMENTS. 

The  officer  of  a  municipal  corporation  acting  in  his 
official  capacity  must  take  care  that  the  fact  of  his  of- 
ficial character  appear  on  the  face  of  the  instrument  and 
that  he  is  not  acting  in  his  personal  character  or  he  will 
bind  himself.  But  in  this  case  not  the  same  degree  of 
technicality  is  required  as  in  the  case  of  private  corpora- 
tions, and  in  some  cases  it  is  held  that  merely  adding 
his  official  designation  to  his  signature  will  relieve  him 
of  personal  liability.  (Dugan  v.  United  States,  3 
Wheat.  172;  McGee  v.  Laramore,  50  Mo.  425.) 

Drafts  or  warrants  drawn  by  one  officer  of  a  munici- 
pal corporation  on  another,  and  used  chiefly  for  the  pur- 
poses of  furnishing  vouchers  to  the  officer  in  charge  of 
the  funds,  are  quite  generally  held  not  to  be  negotiable, 
but  some  cases  conclude  that  if  drawn  in  negotiable  form 
by  the  proper  officer  they  will  be  valid  negotiable  instru- 
ments. (Kelly  v.  Mayor  of  Brooklyn,  4  Hill  265.) 
When  these  drafts  or  warrants  are  recognized  as  nego- 
tiable they  may  be  transferred  by  indorsement  as  other 
commercial  paper.  If  they  are  treated  as  not  nego- 
tiable then  the  party  transferring  them  does  not  become 
liable  as  an  indorser.  (Keller  v.  Hicks,  22  Cal.  460; 
Bull  v.  Sims,  23  N.  Y.  571.)  The  warrants  are  assign- 
able and  the  assignee  may  recover  of  the  corporation 
subject  to  the  equities  existing  against  the  assignor. 
(Tiedeman,  Com.  Pap.,  Sec.  139.) 

Sec.  786.  TRUSTEES,  GUARDIANS,  ETC., 
AS  PARTIES  TO  COMMERCIAL  PAPER.— In 
general  trustees  and  guardians  cannot  issue  any  bill  or 
note  which  will  bind  the  estate  they  represent,  though 


THE    PARTIES.  61 

issued  in  their  representative  capacity.  By  attempting 
to  do  so  they  bind  themselves  personally.  (Robertson 
v.  Banks,  1  Smedes  &  M.  666;  Conner  v.  Clark,  13  Cal. 
168.) 

A  note  or  bill  made  payable  to  a  guardian  or  trustee 
cannot  be  endorsed  away  by  the  guardian  for  his  own 
private  debts,  the  indorsee  taking  the  paper  in  every 
such  case  charged  with  the  trust.  (Baughn  v.  Shackel- 
ford, 48  Miss.  255.)  Other  cases  hold  that  in  the  hands 
of  a  bona  fide  holder  without  notice  other  than  that  of 
the  character  of  the  paper,  the  paper  will  be  free  from 
the  trust.     (Thorton  v.  Rankin,  19  Mo.  193.) 

The  executor  or  administrator  of  an  estate  cannot 
issue  commercial  paper  in  his  representative  capacity 
to  bind  the  estate.  (Curtis  v.  Bank,  39  Ohio  St.  579; 
Lynch  v.  Kirby,  65  Ga.  279.)  Neither  can  he  accept  a 
bill  drawn  on  a  claim  against  the  estate,  and  if  he  does 
so  he  will  bind  himself  personally  (Wisdom  v.  Becker, 
52  111.  342),  in  whatever  way  the  signature  is  written. 
A  note  by  an  administrator  in  settlement  of  a  debt  of  the 
estate  will  not  discharge  the  obligation  unless  accepted 
as  absolute  payment  of  the  original  debt.  (Yerger  v. 
Foote,  48  Miss.  62.)  He  may  limit  his  personal  lia- 
bility by  making  the  note  payable  out  of  the  assets  of 
the  estate,  but  this  destroys  the  negotiability  of  the  in- 
strument because  payable  out  of  a  particular  fund.* 

There  must  be  some  new  consideration  for  the  prom- 
ise of  the  executor  or  administrator  if  he  is  to  be  bound 
personally,  but  a  consideration  is  presumed  from  the 

*See  ante,  Sec.  760. 


62  NEGOTIABLE    INSTRUMENTS. 

fact  that  he  has  assets  of  the  estate  in  his  hands  when  he 
made  the  paper.  This  presumption  may  be  rebutted, 
and  then  in  case  no  other  consideration  appears  the  per- 
sonal representative  will  be  liable  only  to  the  amount 
of  the  assets  in  his  hands  belonging  to  the  estate. 
(Walker  v.  Patterson,  36  Me.  273;  Rittenhouse  v.  Am- 
merman,  64  Mo.  197.)  The  executor's  note  in  the  hands 
of  bona  fide  holders  without  notice  will  be  enforceable 
regardless  of  the  consideration.  (Bank  of  Troy  v.  Top- 
ping, 13  Wend.  273.) 

A  bill  or  note  which  was  payable  to  the  decedent  in 
his  lifetime  should  be  treated  by  the  representative  as 
other  personal  property,  and  suit  should  be  brought  in 
his  representative  capacity.  When  the  note  is  payable 
to  the  executor  or  administrator  as  such,  he  may  sue 
on  it  in  his  own  name  or  in  his  representative  capacity. 
The  personal  representative  may  transfer  or  indorse  the 
paper  of  the  estate,  but  in  the  case  of  indorsements  un- 
less he  exempts  himself  he  will  become  personally  liable 
as  an  indorser.  A  note  payable  to  the  decedent  may  be 
indorsed  by  any  one  of  his  representatives,  while  if  made 
payable  to  his  representatives,  all  must  join  in  the  in- 
dorsement. The  indorsement  does  not  pass  title  unless 
there  is  a  delivery  of  the  paper.  (Tiedeman,  Com.  Pap., 
Sec.  148.) 


CHAPTER  IV. 

THE  CONSIDERATION. 

Sec.  787.  IN  GENERAL.— It  is  a  general  rule  of 
law  that  all  executory  contracts  to  be  enforceable  must 
rest  upon  a  valuable  consideration.  And  this  rule  ap- 
plies to  negotiable  instruments  as  regards  the  immediate 
or  original  parties  to  the  instrument.*  By  the  common 
law,  and  now  quite  generally,  it  is  presumed  that  every 
negotiable  instrument  was  given  upon  a  valuable  con- 
sideration, and  words  acknowledging  receipt  of  consid- 
eration are  not  essential  to  the  validity  of  the  paper.f 

Sec.  788.  WHAT  CONSTITUTES  A  VALU- 
ABLE CONSIDERATION.— In  general  a  valuable 
consideration  as  applied  to  the  law  of  commercial  paper 
is  any  consideration  sufficient  to  support  a  simple  con- 
tract. Thus  a  cross  acceptance,  the  forbearance  of  a 
debt  of  a  third  person,  the  compromise  of  a  disputed 
liability,  or  a  debt  barred  by  the  statute  of  limitations, 
is  held  to  constitute  a  valuable  consideration.     (Benj. 

*See  Sections  437  et  seq.,  Vol.  4  of  the  Cyclopedia  of  Law. 

fPopplewell  v.  Wilson,  1  Stra.  264;  Mandeville  v.  Welch,  5 
Wheat.  277 ;  Dean  v.  Carruth,  108  Mass.  242.  By  statute  in 
some  of  the  states,  as  Arkansas  (Rev.  Stat.  Ark.,  1874,  Sec. 
568),  Missouri  (Macy  v.  Kendall,  33  Mo.  164),  and  Pennsyl- 
vania (Purdon's  Digest,  1894,  p.  1731,  Sec.  1).  It  is  required 
that  all  promissory  notes  contain  the  words  "for  value  received" 
in  order  to  be  negotiable. 

63 


64  NEGOTIABLE    INSTRUMENTS. 

Chalmers,  B.  N.  &  Checks,  Art.  82.)  So  an  antecedent 
or  pre-existing  debt  will  be  a  valuable  consideration  in 
support  of  a  bill  or  note,  when  the  bill  is  received  in 
absolute  payment  of  the  original  debt,  if  nothing  but  a 
conditional  payment  the  holder's  rights  will  be  deter- 
mined by  a  subsequent  rule  governing  bills  taken  as 
collateral  security.  (Bank  v.  Gilliland,  23  Wend.  311; 
Bardsley  v.  Delp,  88  Pa.  St.  420.) 

A  valuable  consideration  is  defined  by  Lush,  J.,  in 
Currie  v.  Misa,  10  L.  R.,  Ex.,  162,  as  "some  right, 
interest  or  benefit  accruing  to  bhe  one  party,  or  some 
forbearance,  detriment,  loss  or  responsibility  given,  suf- 
fered or  undertaken  by  the  other."  Its  adequacy  will 
not  be  investigated  if  given  in  good  faith,  but  where  the 
consideration  is  not  in  good  faith  or  there  is  fraud  or 
mistake,  or  the  consideration  is  illegal,  or  the  parties  are 
so  situated  that  an  unfair  advantage  is  taken  by  one  of 
them,  as  where  one  drives  a  hard  bargain  with  an  ex- 
pectant heir  or  reversioner,  the  consideration  may  be 
questioned  in  actions  between  the  parties.  (Tiedeman, 
Com.  Pap.,  Sec.  154;  Nevill  v.  Snelling,  15  Ch.  D.  679; 
Thomas  v.  Thomas,  7  Wis.  476.)  A  mere  moral  obliga- 
tion, the  giving  up  of  a  void  note,  or  a  voluntary  gift 
of  money  will  not  constitute  a  valuable  consideration. 
(Eastwood  v.  Kenyon,  11  A.  &  E.  438;  Hill  v.  Wilson, 
8  L.  R.  Ch.  894.) 

Sec.  789.  WHO  ARE  HOLDERS  FOR 
VALUE? — If  value  has  at  any  time  been  given  for  a 
bill,  the  holder  of  it  is  a  holder  for  value  as  regards  the 
acceptor  and   all   parties   prior  to  such  time;   thus,   B 


THE    CONSIDERATION.  65 

owes  C  $50.  In  order  to  pay  C,  A  draws  at  B's  request 
a  bill  on  B  for  $50  in  favor  of  C.  C  is  a  holder  for  value 
and  can  sue  A,  though  A  has  received  no  value.  (Benj.'s 
Chalmers,  B.  N.  &  Checks,  Art.  83.)  So  it  will  not 
matter  to  the  holder  that  value  was  given  to  a  person 
who  never  signed  the  instrument,  or  whose  signature  has 
been  struck  out.  Thus  a  note  may  be  made  to  an  indi- 
vidual for  a  debt  due  to  a  company  of  which  the  indi- 
vidual is  an  agent  (Lomas  v.  Bradshaw,  19  L.  J.  C. 
P.  273)  ;  or  to  a  public  officer  for  a  debt  due  the  State 
(Hunter  v.  Field,  20  Ohio  340).  So  where  the  note 
has  been  indorsed  in  blank  without  value,  and  the  in- 
dorsee indorses  to  another  for  value,  the  holder  may 
sue  all  the  parties.  (Brummel  v.  Enders,  18  Gratt. 
905.)  A  person  must  receive  a  bill  in  payment  of  a 
debt  due  him  if  he  is  to  be  considered  a  holder  for  value 
of  a  bill  of  his  debtor's.  The  holder  of  a  bill  who  re- 
ceives it  from  a  holder  for  value,  but  does  not  himself 
give  value  for  it,  has  all  the  rights  of  a  holder  for  value 
against  all  parties  to  the  bill  except  the  person  from 
whom  he  receives  it.  (Frederick  v.  Winans,  51  Wis. 
472;  Rickle  v.  Dow,  39  Mich.  91.)  But  a  holder  for 
value  may  or  may  not  be  a  holder  for  value  without 
notice  and  in  good  faith,  and  if  it  can  be  shown  that  he 
is  not  a  holder  in  good  faith  and  without  notice,  this  will 
sometimes  defeat  his  action.  (Ethridge  v.  Gallagher, 
55  Miss.  464.) 

A  holder  having  a  lien  on  a  bill,  as  a  banker  or 
broker,  arising  either  by  agreement  or  by  implication 
of  law,  is  held  to  be  a  holder  for  value  to  the  extent  of 


66  NEGOTIABLE    INSTRUMENTS. 

the  sum  for  which  he  has  a  lien.  And  the  holder  of  a 
bill  taken  as  collateral  security  is  a  holder  for  value 
where  the  debt  was  created  at  the  time  of  the  transfer,  or 
where  taken  for  a  pre-existing  debt,  and  there  is  an 
express  or  implied  agreement  to  extend  the  time  of  pay- 
ment of  such  debt,  or  other  like  consideration.  (Logan 
v.  Smith,  62  Mo.  455;  Moore  v.  Ryder,  65  N.  Y.  438; 
Stotts  v.  Byers,  17  la.  303.) 

The  courts  are  divided  where  a  note  is  taken  for  a 
pre-existing  debt  and  no  other  consideration  appears, 
some  holding  that  the  party  is  a  holder  for  value  because 
of  his  responsibility  as  a  party  to  the  instrument.  ( Swift 
v.  Tyson,  16  Pet.  i;  Comstock  v.  Hier,  73  N.  Y.  269.) 
Others  deny  this,  but  regard  him  as  a  holder  for  value 
as  against  the  claim  that  the  paper  was  given  for  ac- 
commodation. (Cummings  v.  Boyd,  83  Pa.  St.  376.) 
A  bill  will  be  presumed  to  have  been  negotiated  for 
value  and  not  to  have  been  pledged  or  given  as  col- 
lateral security,  but  this  presumption  may  be  disproved. 
(Trustees  v.  Hill,  12  la.  462.)* 


*Mr.  Daniels,  in  his  "Negotiable  Instruments,"  Sec.  831c, 
classifies  the  New  York  decisions  on  the  question  when  a  holder 
is  one  for  value  having  taken  the  paper  as  collateral  or  for  a 
pre-existing  debt,  as  follows :  "The  transferee  has  been  declared 
to  be  entitled  to  protection  as  a  bona  fide  holder  for  value  in 
the  following  instances:  (1)  Where  the  collateral  note  was 
taken  for  a  loan  contracted  on  the  faith  of  its  transfer;  (2) 
where  the  transferee  of  the  note  surrendered  a  security  for  the 
antecedent  debt;  (3)  where  he  received  the  note  in  payment  of 
a  previous  note  which  was  surrendered  and  canceled;  (4)  where 
he  received  the  note  as  absolute  payment  of  a  pre-existing  debt 


THE    CONSIDERATION.  67 

Sec.  790.  WHO  ARE  BONA  FIDE  HOLDERS 
FOR  VALUE  WITHOUT  NOTICE?— A  bona 
fide  holder  for  value  without  notice  is  a  holder  who,  at 
the  time  he  becomes  the  holder  and  gives  value,  is  really 
and  truly  without  notice  of  any  facts  which,  if  known, 
would  defeat  his  title  to  the  bill.  Thus  where  a  bill 
is  payable  in  two  installments  and  the  holder  pays  one 
installment  without  notice  of  any  fraud,  but  before  the 
second  payment  he  learns  that  the  bill  was  obtained  by 
fraud,  if  he  pays  the  second  installment  he  cannot  col- 
lect for  it,  but  only  for  the  first  installment.  (Benj.'s 
Chalmers,  B.  N.  &  Checks,  Art.  85;  Dresser  v.  Mis- 
souri Co.,  93  U.  S.  92.)  The  terms  "bona  fide  holder," 
"innocent  indorsee,"  etc.,  are  used  synonymously  with 
the  expression  "bona  fide  holder  for  value  without  no- 
tice." Under  the  English  code,  Sec.  29,  the  phrase 
"holder  in  due  course"  is  used  in  the  same  sense. 

By  "notice"  is  meant  either  actual  notice,  or  a  knowl- 
edge of  such  facts  of  wrong-doing  as  would,  if  disre- 
garded, constitute  bad  faith.  Mere  negligence  or  even 
gross  negligence,  will  not  in  the  absence  of  bad  faith 
constitute  notice  to  one  who  has  taken  a  bill  for  value 
without  notice.     (Goodman  v.  Simonds,  20  How.  343.) 


and  not  merely  as  security ;  ( 5 )  where  he  received  the  note 
with  a  valid  agreement  for  an  extension  of  time,  or  with  an 
agreement  not  to  sue  upon  a  pre-existing  debt;  (6)  where  he 
received  the  note,  paying  part  cash,  and  applying  the  residue  in 
payment  of  a  pre-existing  debt;  (7)  where  he  received  the  note 
in  part  payment  of  the  pre-existing  debt,  surrendering  old  notes 
and  taking  new  notes  for  the  balance;  (8)  where  he  received 
the  note  and  discontinued  proceedings  upon  an  execution." 


68  NEGOTIABLE    INSTRUMENTS. 

Gross  negligence  may  be  evidence  of  bad  faith,  but  is 
not  conclusive  of  it,  and  bad  faith  is  now  considered 
necessary  to  defeat  a  bona  fide  holder  for  value.  ( Good- 
man v.  Harvey,  4  A.  &  E.  at  876;  Johnson  v.  Way, 
27  O.  St.  374.)* 

When  a  bill  is  overdue,  or  has  an  irregularity  ap- 
pearing on  its  face  the  holder  of  it  will  be  charged  with 
notice.  These  are  considered  equivalent  to  notice  of  all 
defects  relating  to  it.  (McSherry  v.  Brooks,  46  Md. 
118.) 

A  holder  who  takes  a  bill  or  note  from  a  bona  fide 
holder  for  value,  without  notice  is  subjected  to  all  the 
rights  of  such  former  holder,  though  he  himself  gave 
no  value  and  may  have  had  notice,  if  he  was  not  a  party 
to  the  fraud.  (Woodworth  v.  Huntoon,  40  111.  131.) 
But  the  paper  will  not  be  freed  from  the  fraud  of  a 
party  by  being  negotiated  to  an  innocent  party  when  it 
has  come  back  to  the  hands  of  the  wrong-doer.  (Cal- 
houn v.  Albin,  48  Mo.  304.) 

A  defense  available  against  an  immediate  party,  as 
fraud,  lack  of  consideration,  etc.,  is  available  against 
a  remote  party  who  is  in  privity  with  such  immediate 
party.  Immediate  parties  are  those  in  direct  relation 
with  each  other,  as  the  drawer  and  acceptor,  indorser 
and  indorsee;  all  other  parties  are  remote.    Privity  be- 

*"Illustration :  D,  the  holder  of  a  bill  indorsed  in  blank,  trans- 
fers it  to  E  for  value.  E  suspects  that  D  had  obtained  the  bill 
by  a  false  representation,  and  consequently  makes  no  inquiries. 
As  a  fact  D  stole  the  bill.  E  is  not  a  bona  fide  holder;  he  is 
affected  with  notice."  (Bcnj.'s  Chalmers,  B.  N.  and  Checks, 
Art.  86;  Parsons  v.  Jones,  99  U.  S.  434.) 


THE    CONSIDERATION.  69 

tween  the  parties  is  created  in  all  cases  by  want  of  con- 
sideration, sometimes  by  notice,  and  by  agreement. 
Thus  notice  creates  privity  when  it  is  notice  of  the  de- 
fective title  of  him  from  whom  the  bill  is  taken.  A 
holder  of  a  bill  who  has  given  no  consideration  is  deemed, 
as  regards  third  parties,  as  the  agent  of  the  party  from 
whom  he  took  the  bill,  and  he  holds  it  subject  to  all 
the  defenses  against  the  person  for  whom  he  is  regarded 
as  an  agent.  (Benj.'s  Chalmers,  B.  N.  &  Checks,  Art. 
88.) 

Sec.  791.  SAME  SUBJECT— ACCOMMODA- 
TION PAPER. — An  accommodation  paper  or  bill  in- 
dicates that  the  principal  debtor,  maker  or  acceptor, 
is  lending  his  name  for  the  benefit  of  some  other  per- 
son who  may  or  may  not  be  a  party  to  the  instrument. 
Thus  A  draws  a  bill  on  B.  B  accepts  it  to  accommo- 
date A,  and  it  is  then  negotiated.  This  is  an  accom- 
modation paper,  and  B  is  an  accommodation  party,  or 
one  who  has  signed  without  receiving  value,  and  for  the 
purpose  of  securing  credit  for  the  other  party.  It  will 
be  seen  that  as  between  the  accommodating  party  and 
the  party  accommodated,  there  being  no  consideration 
no  action  could  be  maintained,  and  the  paper  is  of  no 
significance  until  negotiated.  But  the  holder  who  has 
taken  the  accommodation  paper  for  value  can  enforce  it 
against  all  the  parties  to  it.  But  if  the  holder  had  notice 
of  the  character  of  the  paper  the  accommodation  party 
may  set  up  any  defense  which  would  avail  the  party 
accommodated,  as  to  set  off  a  debt  due  from  the  holder 
to  the  party  accommodated.     Until  an  accommodation 


70  NEGOTIABLE    INSTRUMENTS. 

bill  has  been  negotiated  the  accommodation  party  may 
rescind  his  obligation  and  demand  the  recall  of  the  in- 
strument or  the  cancellation  of  his  signature.  (Tiede- 
man,  Com.  Pap.,  Sec.  158.)  The  consideration  given 
by  a  holder  for  value  of  accommodation  paper  makes 
the  paper  enforceable  against  all  parties  to  it,  and  this 
is  true  where  the  paper  has  been  negotiated  after  due. 
(Seyfert  v.  Edison,  16  Vroom  393.) 

Sec.  792.  EFFECT  WHEN  CONSIDERA- 
TION IS  NOT  GIVEN,  OR  FAILS,  ETC.— It  has 
been  seen  in  the  previous  section,  that  the  mere  ab- 
sence of  consideration,  as  in  accommodation  paper,  is 
only  a  defense  as  against  an  immediate  party  or  a  re- 
mote party  who  is  not  a  holder  for  value,  and  is  not  a 
defense  against  a  remote  holder  for  value.  Thus  where 
a  note  is  given  to  the  holder  as  a  gift,  the  holder  cannot 
sue  the  giver.  But  if  such  a  note  were  indorsed  away 
for  value,  the  indorsee  could  sue  the  maker.* 

Total  failure,  as  against  an  immediate  party,  is  a 
good  defense,  but  not  as  against  a  remote  party  who 
is  a  bona  fide  holder  for  value  without  notice.  Thus 
where  the  consideration  of  the  note  was  that  the  payee 
should  act  as  executor  for  the  maker,  and  the  payee  died 


*"A  draws  a  bill  on  B  for  $100.  B  accepts  it  to  accommo- 
date A.  A  discounts  it  with  C,  who  knows  that  it  is  an  accom- 
modation bill.  C  can  sue  A  or  B  for  $100;  but  if  C,  instead  of 
discounting  it,  merely  advanced  $50  on  it,  he  can  only  recover 
$50.  If  C  discount  the  bill,  and  pledge  it  with  D  for  $50,  D 
can  recover  $100  from  B.  and  he  will  hold  $50  thereof  in  trust 
for  C."  (Benj.'s  Chalmers,  B.  N.  and  Checks,  Art.  91  ;  Hilton 
v.  Smith,  5  Gray  402.) 


THE    CONSIDERATION.  71 

first,  the  note  could  not  be  enforced  against  the  maker. 
So  where  a  bill  is  drawn  by  one  party  on  another  pay- 
able to  his  own  order,  and  is  accepted,  if  the  considera- 
tion fails  as  between  these  two,  an  indorsee  for  value 
who  knows  that  the  consideration  has  failed  cannot  sue 
the  acceptor.  (Starr  v.  Torrey,  2  Zabr.  190.)  Partial 
failure  of  consideration  is  a  defense  pro  tanto  against 
an  immediate  party  when  the  failure  is  an  ascertained 
and  liquidated  amount  in  money.  But  it  is  not  a  de- 
fense against  a  remote  party  holder  for  value.  (Tiede- 
man,  Com.  Pap.,  Sec.  201;  Stevens  v.  Campbell,  13 
Wis.  419.)  A  few  decisions  hold  that  a  partial  failure 
of  consideration  will  not  constitute  a  good  defense  in 
any  case  whether  definite  or  indefinite.  (Fletcher  v. 
Chase,  16  N.  H.  38;  Briggs  v.  Boyd,  137  Vt.  534.) 
Statutes  in  Colorado,  Florida,  Georgia,  Illinois,  In- 
diana, Iowa,  New  Hampshire  and  Vermont  allow  a  par~ 
tial  failure  of  consideration  to  be  set  up  as  a  defense 
as  between  the  parties  (2  Randolph  Com.  Pap.  540n), 
Where  the  consideration  is  illegal  in  whole  or  in  part 
it  is  a  defense  against  the  entire  note  while  in  the  hands 
of  an  immediate  party  or  one  who  is  not  a  bona  fide 
holder  for  value  without  notice.  (Shirley  v.  Howard, 
53  111.  455.)  In  general  the  consideration  for  a  bill  is 
illegal  when  it  is  wholly  or  in  part  immoral,  contrary 
to  public  policy,  or  forbidden  under  penalties  by 
statute.* 


*Thus  Tiedeman  mentions  among  illegal  considerations,  the 
compounding  of  crimes  and  misdemeanors,  contracts  in  aid  of 
rebellion  or  an   alien  enemy,  the  bribing  of   a   public   officer, 


72  NEGOTIABLE    INSTRUMENTS. 

A  distinction  is  to  be  made  between  a  consideration 
simply  illegal  and  one  which  by  statute  expressly  makes 
the  bill  void.  In  the  former  case  a  bona  fide  transferee 
may  recover,  though  not  in  the  latter.  (Boughner  v. 
Meyer,  5  Col.  71.) 

Where  a  bill  is  given  for  a  consideration  which  the 
statute  expressly  makes  void,  the  party  who  gave  the 
paper  may  set  it  up  as  a  defense  against  all  holders 
whether  immediate  or  remote,  but  the  holder  can  sue 
the  indorser.  (Eagle  v.  Cohen,  84  111.  292;  Armstrong 
v.  Gibson,  31  Wis.  66.)  It  is  no  longer  customary  by 
law  to  make  notes  expressly  void  by  statute,  and  where 
such  statutes  do  exist  a  clause  frequently  saves  the 
rights  of  innocent  holders.  (Benj.'s  Chalmers,  B.  N. 
&  Checks,  Art.  96n.)  The  holder  of  commercial  paper 
is  prima  facie  presumed  to  be  an  innocent  holder  for 
value,  but  where  there  is  evidence  affecting  the  bill  or 
note  with  fraud  or  illegality,  the  burden  of  proof  is 
shifted  to  the  holder  to  show  that  he  is  an  innocent 
holder  for  value.  (Sperry  v.  Spalding,  45  Cal.  544; 
Bank  v.  Gilliland,  23  Wend.  311.)  In  case  the  holder 
can  show  that  he  paid  full  value,  the  defendant  must 
then  show  that  the  holder  had  notice  of  the  fraud  or 
illegality.  So  it  is  held  that  where  the  holder  has  in 
good  faith  given  part  value  he  may  recover  to  a  like 
amount.     (Dresser  v.  Missouri,  93  U.  S.  92.) 

Sec.  793.  FRAUD  OR  DURESS  AS  AFFECT- 
ING THE  CONSIDERATION.— Where  the  con- 


wagers,  options  or  "futures,"   restraint  of  trade,  restraint  of 
marriage,  usury,  etc.     (Com.  Paper,  Sees.  183-196.) 


THE    CONSIDERATION.  73 

sideration  for  a  bill  is  clearly  fraudulent  it  is  a  good 
defense  against  an  immediate  party  or  a  remote  party 
unless  he  is  an  innocent  holder  for  value,  and  while  the 
instrument  is  yet  in  the  hands  of  a  party  with  notice 
a  court  of  law  will  compel  its  surrender,  or  restrain  its 
negotiation  until  the  question  of  fraud  is  settled.  (Joyce 
on  Injunctions,  p.  369;  Jones  v.  Lane,  3  Y.  &  C.  293.) 

A  bill  is  affected  with  fraud  when  the  issue  or  any 
subsequent  negotiations  of  it  is  obtained  by  fraud,  or 
coercion,  or  when  it  is  negotiated  in  breach  of  faith, 
or  in  fraud  of  third  parties.  (Segrum  v.  Prescott,  69 
Me.  376.)  The  defendant  should  not  retain  any  part 
of  the  consideration.  (Heaton  v.  Knowlton,  53  Ind. 
357.) 

No  holder  of  a  bill  subsequent  to  its  being  affected 
with  fraud  can  enforce  payment  from  any  party  thereto, 
or  retain  the  bill  against  the  rightful  owner  unless  he 
is  a  bona  fide  holder  for  value  without  notice.  ( Alsager 
v.  Chase,  10  M.  &  W.  576.) 


CHAPTER  V. 

ACCEPTANCE  AND  TRANSFER  CONSIDERED. 

Sec.  794.  THE  PURPOSE  OF  ACCEPT- 
ANCE.— The  drawee  of  a  bill  is  not  bound  as  a  party 
to  the  instrument  until  he  has  accepted  it,  or  agreed 
previously  to  pay  it,  and  cannot  be  sued  by  the  holder 
of  the  bill,  though  he  has  funds  in  his  hands  to  cover 
the  bill,  except  where  the  bill  constitutes  an  equitable 
assignment  of  the  fund  drawn  against.  (Mandeville  v. 
Welch,  5  Wheat.  277.)  So  due  presentment  for  ac- 
ceptance by  the  holder  is  a  condition  precedent  to  the 
exercise  of  rights  against  the  other  parties  to  the  bill 
arising  when  the  bill  is  dishonored  by  non-acceptance. 
The  purpose  of  acceptance  then  is  to  bind  the  drawee 
and  make  him  an  actual  and  bound  party  to  the  instru- 
ment, which  he  is  not  until  he  has  accepted.  ( Swope  v. 
Ross,  40  Pa.  St.  186.) 

Sec.  795.  MEANING  AND  EFFECT  OF 
ACCEPTANCE.— When  the  drawee  has  accepted  the 
bill  it  means  that  he  has  bound  himself  to  pay  the  bill 
according  to  its  tenor,  and  he  thus  replaces  the  drawer 
as  the  primary  debtor  to  the  holder,  and  relieves  him 
from  responsibility  as  a  guarantor  that  the  acceptor  will 
pay  when  due.  Upon  paying  the  bill  the  acceptor  can 
charge  the  amount  of  same  to  the  funds  of  the  drawer 
in  his  hands,  or  if  none,  can  recover  from  him  by  action. 

74 


ACCEPTANCE  AND  TRANSFER.       75 

(Planters'  Bank  v.  Douglass,  2  Head.  699;  Smith  v. 
Muncie  Bank,  29  Ind.  158.) 

Sec.  796.  BILLS  THAT  MUST  BE  PRE- 
SENTED FOR  ACCEPTANCE.— All  bills  pay- 
able on  a  future  date,  or  a  specified  time  after  date, 
or  on  demand,  need  not  be  presented  until  they  mature 
and  are  payable.  But  such  bills  may  be  presented  be- 
fore due  to  ascertain  if  they  will  be  honored,  and  if 
this  is  done  and  acceptance  refused,  the  bill  is  dishon- 
ored and  must  be  protested.  (Philpott  v.  Bryant,  3  C. 
&  P.  244;  Allen  v.  Suydam,  20  Wend.  321.)  In  case 
of  bills  payable  at  sight,  or  a  specified  time  after  sight, 
or  after  any  uncertain  event,  presentment  for  acceptance 
must  be  made  without  unreasonable  delay  to  bind  the 
other  parties  to  the  bill.  (Tiedeman,  Com.  Pap.,  Sec. 
211;  Cox  v.  National  Bank,  100  U.  S.  704.) 

A  failure  to  present  in  the  proper  time  and  manner 
by  the  holder  of  a  bill,  will  destroy  its  effect  as  against 
all  the  parties,  and  also  cancel  the  claim  settled  by  the 
bill.  Presentment  is  a  duty  which  the  holder  owes  to 
the  other  parties  to  the  instrument,  as  they  expect  the 
bill  to  be  accepted  and  paid  by  the  drawee.  (Gracie 
v.  Sandford,  9  Ark.  238;  Smith  v.  Miller,  43  N.  Y. 

171.)* 
Sec.  797.    PRESENTMENT,  HOW  MADE.— 

Any  person  in  possession  of  a  bill  of  exchange  may 

*"Presentment  for  acceptance  is  necessary  in  the  case  of  a 
bill  of  exchange  payable  at  or  after  sight.  In  other  cases,  in 
the  absence  of  express  stipulation,  it  is  optional."  (Benj.'s 
Chalmers,  B.  N.  and  Checks,  Art.  147.) 


76  NEGOTIABLE    INSTRUMENTS. 

present  it  for  acceptance,  or  may  do  so  through  his 
properly  authorized  agent.  (Freeman  v.  Boynton,  7 
Mass.  483.)  The  presentment  must  be  made  to  the 
drawee  personally  or  to  some  person  who  has  authority 
to  accept  or  refuse  to  accept  for  him.  ( Sharpe  v.  Drew, 
9  Ind.  281.)  A  bill  on  a  firm  may  be  presented  to 
any  one  of  the  partners,  otherwise  in  case  of  two  or 
more  drawees  not  partners.  (Holtz  v.  Popple,  37  N. 
Y.  634;  Bank  v.  Willis,  8  Met.  504.)  If  drawee  is 
dead  presentment  must  (perhaps)  be  made  to  the  execu- 
tor or  administrator.  (Chitty  on  Bills,  Sec.  280;  Con- 
tra, Daniels,  Sec.  458.)  By  statute  in  California,  Utah 
and  the  Dakotas,  presentment  may  be  made  to  one  in 
charge  of  the  place  of  business  or  residence  of  the 
drawee  in  case  of  his  absence. 

The  bill  should  be  presented  to  the  drawee  at  his 
domicile,  either  at  his  residence  or  place  of  business,  and 
in  case  of  a  regular  business  place  it  is  the  more  cus- 
tomary place.  (Tiedeman,  Com.  Pap.,  Sec.  213.) 
When  the  residence  or  place  of  business  cannot  be  found 
after  diligent  search,  or  his  new  residence  in  case  of 
removal,  the  bill  may  be  protested  as  though  refused 
acceptance.     (Chitty  on  Bills  317.) 

Presentment  should  be  made  on  a  business  day  and 
at  reasonable  hours  of  business.  What  constitutes  rea- 
sonable hours  of  business  depends  upon  the  custom  of 
the  particular  place  and  also  upon  the  trade  or  busi- 
ness. (Nelson  v.  Fotterall,  7  Leigh  179.)  Any  hour 
before  the  customary  hour  of  retiring  will  be  sufficient 


ACCEPTANCE  AND  TRANSFER.       77 

when  presented  at  drawee's  residence.     (Dana  v.  Saw- 
yer, 22  Me.  244.) 

The  time  within  which  the  holder  must  present  a  bill 
for  acceptance  which  requires  such  presentment,  is  usu- 
ally stated  to  be  a  reasonable  time,  and  this 
is  a  mixed  question  of  law  and  fact.  (Walsh  v.  Dart, 
23  Wis.  334.)  When  the  facts  are  plain  and  simple 
reasonable  time  for  presentment  is  a  question  of  law, 
while  complicated  circumstances  make  it  a  question  for 
the  jury.  (Prescott  Bank  v.  Caverly,  7  Gray  217.) 
The  facility  of  communication  between  the  domiciles 
of  holder  and  drawee;  the  distance;  the  facility  of  get- 
ting exchange;  sickness;  war;  and  other  circumstances 
not  to  be  overcome  by  due  diligence  of  the  holder,  will 
affect  the  time  allowed  for  presentment  for  acceptance. 
So  the  holder  of  a  bill  of  exchange  payable  at  or  after 
sight  instead  of  presenting  within  a  reasonable  time 
may  negotiate  it  away,  and  this  will  relieve  him,  as  the 
bill  is  intended  to  circulate.  But  this  cannot  go  on  in- 
definitely and  will  only  affect  the  question  of  reasonable 
time.* 


*"In  the  following  cases  the  delays  were  held  to  be  reasonable ; 
four  days,  drawn  in  country  on  London,  Shute  v.  Robins,  3  C. 
&  P.  80 ;  bill  drawn  in  Erie,  Pa.,  on  New  York  City,  delay  eleven 
days;  Banking  Co.  v.  Second  National  Bank,  63  Pa.  St.  404; 
drawn  in  New  Orleans  on  Liverpool,  ten  weeks,  Bolton  v.  Harrod, 
9  Mart.  326;  drawn  in  Dakota  on  Chicago,  thirty-five  days, 
Montelius  v.  Charles,  76  111.  303;  drawn  in  Toronto  on  New 
York,  three  months,  Boyes  v.  Joseph,  7  U.  C.  Q.  B.  505 ;  drawn 
in  London  on  Calcutta,  seventy-eight  days,  Muilman  v. 
D'Eguino,  2  H.  Bl.  565.     On  the  other  hand,  it  was  held  to  be 


78  NEGOTIABLE    INSTRUMENTS. 

The  drawee  may  demand  of  the  holder  of  a  bill  who 
seeks  acceptance  of  it,  that  the  bill  be  exhibited  to  him, 
and  in  this  case  the  holder  must  have  the  bill  with  him 
in  order  to  make  a  good  presentment,  and  the  drawee 
may  take  it  into  his  possession  and  retain  it  twenty- 
four  hours  for  examination  and  identification.  But 
where  the  drawee  refuses  acceptance  of  a  bill  from  its 
description  the  holder  need  not  exhibit  it.* 

The  presentment  must  be  final,  and  the  notary  must 
not  agree  to  call  again  with  it  on  another  day.  And  in 
case  of  duplicate  bills  the  drawee  should  accept  but  one, 
or  he  will  be  liable  to  bona  fide  holders  of  each  accepted 
bill.     (Bank  v.  Neal,  22  How.  96,  109.) 


unreasonable  delay  of  presentment  for  acceptance,  where  the  bill 
was  drawn  in  Detroit  on  Chicago,  twenty-one  days'  delay,  Phoe- 
nix Ins.  Co.  v.  Allen,  11  Mich.  30;  drawn  in  Wisconsin  on  New 
York,  fourteen  days,  Walsh  v.  Hart,  23  Wis.  334;  drawn  in 
Ohio  on  New  York,  ten  days,  Vantrot  v.  McCullough,  2  Hilt. 
"72,  etc."     (Tiedeman,  Com.  Paper,  Sec.  21 6n.) 

*In  many  of  the  States  the  time  is  fixed  by  statute  during 
which  the  drawee  may  retain  the  bill  for  examination,  and  is 
customarily  24  hours. 

"The  person  who  presents  a  bill  of  exchange  for  acceptance 
must  deliver  it  to  the  drawee  if  required  to  do  so.  The  drawee 
is  entitled  to  retain  it  for  twenty-four  hours,  but  after  the  ex- 
piration of  this  time  he  must  re-deliver  it  accepted  or  unaccepted. 
(Case  v.  Burt,  15  Mich.  82.)  In  reckoning  the  twenty-four 
hour  non-business  days  must  be  excluded.  If  after  the  expira- 
tion of  the  twenty-four  hours  the  drawee  refuses  to  re-deliver 
the  bill  it  must  be  treated  as  dishonest  in  order  to  preserve  the 
holder's  right  of  recourse  against  antecedent  parties."  (Bcnj.'s 
Chalmers,  B.  N.  .V  Checks,  Art.  154.) 


ACCEPTANCE  AND  TRANSFER.       79 

Sec.  798.  PRESENTMENT,  WHEN  EX- 
CUSED.— Presentment  for  acceptance  is  excused  and 
the  bill  should  be  protested  as  dishonored  by  non-ac- 
ceptance: (1)  When  the  drawee  is  discovered  to  be  a 
fictitious  person,  or  is  incapable  of  making  a  valid  con- 
tract from  legal  disabilities,  or  is  the  drawer,  as  a  part- 
ner in  the  firm  which  is  drawee,  or  officer  of  a  private 
corporation  which  is  drawee.  (Tiedeman,  Com.  Pap., 
Sec.  218.)  (2)  Where,  after  reasonable  diligence  to 
ascertain  the  drawee,  the  presentment  cannot  be  ef- 
fected. (Byles,  12th  ed.,  p.  183;  Chitty,  p.  199.)  (3) 
When  the  drawee  is  not  in  funds,  and  the  drawer  has  no 
reasonable  expectation  that  the  bill  will  be  accepted. 
(Robinson  v.  Ames,  20  Johns.  146.)  (4)  Where  the 
bill  contains  a  clause  waiving  acceptance,  but  not  be- 
cause the  drawer  has  countermanded  the  bill.  (Daniel, 
Sec.  450.) 

Sec.  799.  THE  ACCEPTANCE  CONSID- 
ERED.— Generally  speaking,  no  one  but  the  drawee 
can  accept  a  bill,  and  a  stranger  accepting  will  either 
not  be  bound  at  all  or,  if  there  is  sufficient  considera- 
tion, as  a  guarantor.  (Keenan  v.  Nash,  8  Minn.  409; 
Story  on  Bills,  Sec.  254.)  This  does  not  apply  to  bills 
in  blank,  and  a  case  of  need  may  accept.  So  an  author- 
ized agent  of  the  drawee  may  accept,  but  unless  the 
agent  furnishes  clear  evidence  of  authority  the  holder 
may  protest  the  bill  for  non-acceptance.  The  accept- 
ance may  be  made  before  the  bill  is  drawn  or  while  still 
incomplete,  but  is  usually  made  a  reasonable  time  after 
execution.    Where  the  acceptance  is  made  in  blank  and 


80  NEGOTIABLE    INSTRUMENTS. 

delivered  to  be  filled  up  a  bona  fide  holder  for  value 
may  enforce  it  against  the  acceptor.  The  acceptance 
may  be  made  after  the  bill  has  matured  and  been  pro- 
tested for  non-payment,  and  is  then  payable  on  demand. 

The  holder  may  require  that  the  date  of  acceptance 
be  written  on  the  bill  so  it  will  appear  from  the  face  of 
the  instrument  when  it  is  due.  (Daniel,  Sec.  395.) 
Where  the  date  is  not  indorsed  on  the  bill  it  may  be 
proven  and  is  presumed  to  have  been  made  prior  to 
the  date  of  payment  and  within  a  reasonable  time  after 
the  bill's  execution.     (Tiedeman,  Com.  Pap.,  Sec.  220.) 

The  acceptor  or  drawee  who  has  not  communicated 
his  acceptance  or  the  accepted  bill  to  the  holder,  may  re- 
voke an  acceptance  before  delivery  and  cancel  the  writ- 
ten acceptance.  Unless  required  by  statutes,  which  is 
usually  the  case,  or  requested  by  the  holder,  the  accept- 
ance may  be  written  or  verbal.  Many  States  require 
the  acceptance  to  be  in  writing  and  signed  by  the  ac- 
ceptor. The  fact  that  the  statute  of  frauds,  respecting 
a  promise  to  answer  for  the  debt  of  another,  is  held  by 
some  authorities,  makes  it  desirable  that  all  acceptances 
be  in  writing.  But  where  the  drawee  has  funds  of  the 
drawer  in  his  possession  it  is  held  to  be  the  payment  of 
his  own  debt,  and  the  acceptance  is  not  within  the  stat- 
ute of  frauds.     (Townsley  v.  Sumrall,  2  Pet.  170.) 

The  usual  form  of  acceptance  is  made  by  writing  the 
word  "accepted"  on  the  face  of  the  bill,  and  the  signa- 
ture of  the  acceptor,  and  by  statute  in  a  number  of 
States  the  signature  is  required.  But  an  acceptance  is 
good  at  the  common-law  merchant  without  the  signa- 


ACCEPTANCE  AND  TRANSFER.       81 

hire.  (Phillips  v.  Frost,  19  Me.  77.)  So  any  form  of 
expression  as  "presented,"  "seen,"  "honored,"  "payment 
guaranteed,"  and  the  like  expressions,  indicating  the 
intent  to  accept,  will  take  the  place  of  the  formal  expres- 
sion "accepted."     (Tiedeman,  Com.  Pap.,  Sec.  223.) 

So  an  acceptance  will  be  implied  from  conduct  of 
the  drawee  inconsistent  with  a  refusal  to  accept,  as 
where  he  discounts  paper  made  for  his  accommodation, 
or  makes  part  payment  and  arranges  to  pay  the  balance. 
(Bank  v.  Woodruff,  34  Vt.  89;  Andressen  v.  Bank,  2 
Fed.  Rep.  125.) 

Sec.  800.  ACCEPTANCES  FOR  HONOR,  OR 
SUPRA  PROTEST.— When  the  drawee  has  refused 
to  accept  a  bill  and  protest  has  been  made  and  notice 
given  to  all  the  parties,  any  third  person  may  then  ac- 
cept the  bill  for  the  honor  of  one  or  several  parties  to 
the  bill.  The  acceptor  after  protest  (supra  protest) 
should  specify  for  whose  honor  he  accepts  it,  or  it  will 
be  presumed  to  be  for  the  honor  of  the  drawer.  The 
acceptance  for  honor  enures  to  the  benefit  of  all  parties 
for  whose  honor  it  was  accepted.  (Markham  v.  Hazen, 
48  Ga.  570;  1  Parsons'  N.  k  B.  313.) 

The  holder  is  not  bound  to  take  an  acceptance  for 
honor,  but  by  doing  so  he  loses  the  right  to  sue  the 
parties  for  whose  honor  it  was  accepted  until  maturity, 
and  refusal  of  payment  by  the  acceptor  for  honor. 

An  acceptance  for  honor  is  properly  made  by  the  ac- 
ceptor appearing  before  a  notary  public  and  declaring 
his  intention  to  accept  for  the  honor  of  some  one  or 
more  of  the  parties  and  subscribing  to  some  such  ex- 


82  NEGOTIABLE    INSTRUMENTS. 

pression  of  his  intention  as  "accepted  for  the  honor  of 
A."  (Daniel,  Sec.  523.)  The  acceptance  for  honor 
is  not  absolute.  "In  order  to  make  such  an  acceptor 
liable,  the  bill  must  be  again  presented  to  the  drawee 
at  maturity,  notwithstanding  his  refusal  to  accept,  so 
that  he  might  pay  the  bill,  if  he  saw  reasons  for  changing 
his  previous  determination.  If  he  refuses,  the  bill  should 
be  protested,  and  then  presented  to  the  acceptor  for 
honor.  And  if  the  acceptor  for  honor  refuses  to  pay 
the  bill,  it  should  be  again  protested,  and  in  this  pro- 
test all  the  steps  that  had  been  taken  to  secure  the 
payment  of  the  bill  should  be  stated,  £.id  then  notice 
should  be  given  to  all  the  parties  for  whose  honor  the 
bill  had  been  accepted."  (Tiedeman,  Com.  Pap.,  Sec. 
228;  1  Parsons'  N.  &  B.  320.)  The  date  of  maturity 
will  be  ascertained  from  the  date  of  acceptance  and  not 
from  presentment  in  case  of  acceptance  for  honor.  The 
acceptor  must  notify  the  parties  for  whose  honor  he  ac- 
cepts, and  of  his  payment  of  the  bill,  and  if  this  is  done 
within  a  reasonable  time  he  will  have  recourse  against 
such  parties.  He  will  only  have  recourse  against  parties 
prior  to  the  one  for  whose  honor  he  accepts.  (Gazzam 
v.  Armstrong,  3  Dana  554.) 

Other  forms  of  conditional  acceptance  occur  in  busi- 
ness, and  if  the  holder  consent  to  take  such  a  qualified 
acceptance  he  must  give  notice  of  the  qualification  to 
antecedent  parties  and  get  their  consent,  otherwise  he 
runs  the  risk  of  freeing  them  from  their  liability.  (Cro- 
well  v.  Plant,  53  Mo.  135.)* 

*"Thc  following  may  be  mentioned  as  illustrative  exampks 


ACCEPTANCE    AND    TRANSFER.  83 

Sec.  801.    PRESENTMENT  FOR  PAYMENT 

CONSIDERED.— The  rules  already  considered  apply 
both  to  presentment  for  acceptance  and  presentment  for 
payment,  but  it  is  thought  best  to  give  a  few  principles 
applicable  to  presentment  for  payment  at  this  time. 

When  a  bill  of  exchange  has  been  dishonored  by  non- 
acceptance  the  holder  has  the  option  to  present  for  pay- 
ment or  not,  except  when  accepted  supra  protest. 
(Read  v.  Adams,  6  Serg.  &  R.  356.)  In  other  cases 
due  presentment  of  a  bill  of  exchange  to  the  drawee  for 
payment  is  necessary  to  bind  the  drawer  and  indorsers. 
By  due  presentment  is  meant  such  a  presentment  as  re- 
gards time,  place,  and  other  circumstances  as  has  been 
discussed  in  this  chapter.  The  holder  must  demand  pay- 
ment according  to  the  tenor  of  the  bill.  When  payable 
at  a  determinable  time  it  should  be  presented  upon  that 
day  subject  to  grace  and  usance  of  trade;  and  when 
payable  on  demand  it  must  be  presented  within  a  reas- 
onable time.  (Byles,  p.  211.)  When  a  bill  is  made  pay- 
able at  a  particular  place  by  the  drawer  of  a  draft  or 
by  the  acceptor  in  a  general  acceptance,  presentment 
for  payment  must  be  made  at  that  place.  The  person 
who  presents  the  bill  should  produce  it  and  be  ready  and 
willing  to  surrender  it  on  receiving  payment.  In  case 


of  conditional  and  qualified  acceptances:  'To  pay  when  goods 
consigned  to  me  are  sold'  (Smith  v.  Abbott,  2  Stra.  1152)  ;  'to 
pay  as  remitted  for' ;  'to  pay  when  cargo  of  equal  value  is  con- 
signed to  me' ;  'payable  when  house  is  ready  for  acceptance.' 
(Cook  v.  Wolfendale,  105  Mass.  401)."  (Tiedeman,  Com.  Pa- 
per, Sec.  227.) 


84  NEGOTIABLE    INSTRUMENTS. 

the  bill-  is  lost  presentment  of  a  copy  with  a  bond  of 
indemnity  would  be  valid.  (Lane  v.  Bank,  9  Heisk. 
419.)  And  a  protest  may  be  made  on  a  copy  of  the  lost 
instrument.     (Brooks'  Notary,  4th  ed.,  pp.  137,  217.) 

A  bill  is  said  to  be  dishonored  by  non-payment  when 
it  is  duly  presented  for  payment  and  payment  refused 
or  cannot  be  obtained;  or  when  presentment  for  pay- 
ment is  excused,  and  the  bill  is  overdue  and  unpaid. 
The  holder  of  a  bill  dishonored  by  non-payment,  by  tak- 
ing steps  to  protest  the  bill  acquires  right  of  recourse 
against  all  antecedent  parties  to  the  bill. 

When  a  bill  is  payable  generally  or  at  a  particular 
place  no  presentment  is  necessary  to  charge  the  ac- 
ceptor, as  it  is  his  duty  to  be  on  hand  to  pay  or  seek  out 
his  creditor  to  pay  him.  (Dougherty  v.  Bank,  13  Ga. 
288.) 

TRANSFER. 

Sec.  802.  IN  WHAT  WAYS  BILLS  AND 
NOTES  MAY  BE  TRANSFERRED.— As  a  bill  or 
note  is  a  chattel  it  may  he  sold  as  a  chattel;  it  is  also 
a  chose  in  action  and  can  be  assigned  as  a  chose  in  action, 
and  as  it  is  also  a  negotiable  instrument  it  may  be  trans- 
ferred by  indorsement  according  to  the  rules  of  the  law 
merchant. 

Sec.  803.  TRANSFER  BY  ACT  OF  LAW.— 
At  common  law  the  title  to  a  bill  of  a  married  woman 
during  marriage  was  in  the  husband,  if  he  died  it  re- 
verted to  her.  (Draper  v.  Jackson,  16  Mass.  480.) 
This  rule  does  not  apply  to  a  bill  forming  part  of  wife's 
separate  estate,  and  now  quite  generally  by  statute  a 


ACCEPTANCE  AND  TRANSFER.       85 

married  woman  has  the  rights  of  a  feme  sole.  (See  this 
subject  discussed  in  Vol.  3  of  The  Cyclopedia  of  Law.) 

On  the  death  of  a  holder  the  title  passes  by  act  of 
law  to  his  personal  representatives.  And  upon  the  death 
of  a  joint  payee  the  law  passes  the  title  to  the  sur- 
vivor or  survivors.     (Wheeler  v.  Wheeler,  9  Cow.  34.) 

Sec.  804.  TRANSFER  BY  ASSIGNMENT.— 
The  holder  of  a  bill  may  transfer  it  by  assignment  the 
same  as  any  other  chose  in  action.  Where  the  holder 
of  a  bill  payable  to  order  transfers  it  without  indorse- 
ment it  operates  as  an  equitable  assignment,  and  the 
transferee  may  compel  indorsement.  (Matteson  v.  Mor- 
ris, 40  Mich.  55.)* 

When  indorsement  is  subsequently  obtained  the  trans- 
fer operates  as  a  negotiation  from  the  time  when  given, 
unless  the  indorsement  was  omitted  at  the  time  of  trans- 
fer by  fraud,  accident  or  mistake,  in  which  case  it  oper- 
ates from  the  time  of  the  transfer.  (Lancaster  Bank  v. 
Taylor,  100  Mass.  18.) 

The  holder  of  a  bill,  but  not  the  maker  of  a  note,  may 
deliver  it  by  way  of  a  gift  in  contemplation  of  death, 
and  die,  and  it  will  operate  as  a  valid  donatio  mortis 
causa.  But  the  estate  is  not  liable  on  the  donor's  in- 
dorsement.   (Weston  v.  Hight,  17  Me.  287.) 

Sec.  805.  TRANSFER  BY  NEGOTIATION, 
ITS  MEANING.— "Negotiation"  means  the  transfer 

*"C,  the  holder  of  a  bill  payable  to  order,  transfers  it  to  D 
for  value  without  indorsing  it.  D  cannot  sue  the  acceptor  in  his 
own  name,  or  negotiate  the  bill  by  indorsing  it  to  E."  (Benj.'s 
Chalmers,  B.  N.  &  Checks,  Art.  104 ;  Hull  v.  Conover,  35  Ind. 
372.) 


86  NEGOTIABLE    INSTRUMENTS. 

of  a  bill  in  the  form  and  manner  prescribed  by  the  law 
merchant  with  the  incidents  and  privileges  annexed 
thereby,  i.  e. : 

1.  The  transferee  can  sue  all  parties  to  the  instru- 
ment in  his  own  name,  and,  if  an  innocent  holder,  be 
free  from  all  defenses  unknown  to  him  and  not  appear- 
ing on  the  face  of  the  note. 

2.  The  consideration  for  the  transfer  is  prima  facie 
presumed. 

3.  The  transferor  can  under  certain  conditions  give 
a  good  title,  although  he  has  none  himself. 

4.  The  transferee  can  further  negotiate  the  bill  with 
the  like  privileges  and  incidents.  (Benj.'s  Chalmers, 
B.  N.  &  C,  Art.  106.) 

We  have  seen  in  the  previous  chapters  that  to  make  a 
bill  or  note  negotiable  it  must  contain  express  words 
making  it  negotiable,  and  these  words  of  negotiability 
were  there  discussed.     ( Sec.  755,  et  seq.,  ante.) 

When  the  bill  is  made  negotiable  in  its  origin,  the 
absence  of  words  implying  power  to  transfer  will  not 
limit  the  negotiable  effect  of  such  indorsement.  (Lea* 
vitt  v.  Putman,  3  N.  Y.  494.) 

Having  the  other  requisites  a  bill  is  negotiable  which 
is  payable  in  legal  effect  either  to  order  or  to  bearer. 
It  is  payable  to  bearer  when  so  stated  or  when  indorsed 
in  blank.  And  a  bill  lacking  words  of  negotiability,  but 
containing  an  expression  as  "this  bill  is  to  be  negoti- 
able," indicating  that  it  was  the  intention  of  the  parties 


ACCEPTANCE  AND  TRANSFER.       87 

to  make  it  negotiable,  will  be  negotiable.  (Parker  v. 
Middleton,  29  Pa.  St.  530.) 

Sec.  806.  NEGOTIATIONS  BY  DELIVERY 
AND  BY  INDORSEMENT.— There  are  two  modes 
of  negotiation,  by  delivery  and  by  indorsement  accord- 
ing to  the  form  of  the  instrument  transferred.  Thus, 
a  bill  which  in  legal  effect  is  payable  to  bearer,  may  be 
negotiated  by  delivery  alone.  It  may  also  be  indorsed 
and  makes  the  indorser  a  guarantor  of  the  instrument, 
and  such  indorsement  may  be  struck  out  without  affect- 
ing the  negotiability  of  the  paper.  A  bill  in  legal  effect 
payable  to  order  is  negotiated  by  indorsement.*  But 
indorsement  must  be  completed  by  delivery  of  the  in- 
strument, and  the  term  usually  implies  delivery. 

The  indorsement  must  be  written  on  the  bill  itself, 
or  on  a  copy,  or  on  a  slip  of  paper  attached  thereto 
called  an  "Allonge,"  and  considered  a  part  of  the  bill. 
The  indorsement  may  be  on  the  face  of  the  bill. 

Sec.  807.  KINDS  OF  INDORSEMENTS.— An 
indorsement  may  be  in  blank  or  a  general  indorsement, 
in  which  case  the  bill  is  transferable  by  delivery  alone, 
or  it  may  be  a  special  or  full  indorsement  designating 
the  person  to  whom  or  to  whose  order  the  bill  is  thereby 
made  payable,  and  then  can  only  be  negotiated  by  such 
person's  indorsement. 

The  holder  of  a  bill  with  a  blank  indorsement,  may, 


*"Indorsement  means  a  writing  on  a  bill  signed  by  the  holder, 
ordering  the  amount  to  be  paid  to  a  person  therein  designated, 
or  to  his  order,  or  to  bearer."  (Benj.'s  Chalmers,  B.  N.  &  C, 
Art.  111.) 


88  NEGOTIABLE    INSTRUMENTS. 

by  writing  a  name  over  the  indorsees  signature  con- 
vert it  into  a  special  indorsement,  but  such  a  bill  is  not 
restrained  thereby  and  is  payable  to  bearer,  except  that 
the  special  indorser  is  only  liable  to  parties  making 
title  through  his  indorsement.  (Johnson  v.  Mitchell,  50 
Tex.  212.) 

Sec.  808.  QUALIFIED,  CONDITIONAL  AND 
RESTRICTIVE  INDORSEMENTS.— As  every 
indorsement  consists  of  two  distinct  contracts,  unless 
otherwise  stipulated,  the  present  transfer  or  negotiation 
of  the  bill,  and  the  assumption  of  a  future  contingent 
liability  to  pay  same  as  an  indorser,  it  is  necessary  for 
the  indorser  to  limit  or  qualify  his  second  contract  of 
future  liability,  and  this  may  be  done  without  affecting 
the  negotiability  of  the  paper. 

Thus  the  indorser  may  put  in  the  indorsement,  "pay 
D  or  order,  without  recourse  on  me,"  or  "sans  recours" 
or  the  like,  and  then  he  transfers  his  title  just  the  same 
but  incurs  no  liability  as  an  indorser. 

The  indorser  may  also  waive  a  right  he  may  have  as 
an  indorser  and  thus  enlarge  the  right  of  the  holder. 
This  is  called  a  facultative  indorsement,  and  does  not 
affect  the  negotiability  of  the  bill.  So  the  indorser  may 
insert  a  reference  to  a  case  of  need  in  the  indorsement. 

By  a  conditional  indorsement  is  meant  that  the  in- 
dorser makes  his  liability  as  a  party  depend  upon  the 
fulfillment  of  the  condition  stated.  Thus  where  the 
bill  reads,  "Pay  D  or  order  upon  my  name  appearing 
in  the  Gazette  as  ensign  in  any  regiment  between  the 
1st  and  64th,  if  within  two  months  from  this  date,"  and 


ACCEPTANCE  AND  TRANSFER.       89 

the  acceptor  pays  the  bill  without  the  condition  being 
fulfilled,  he  is  liable  to  the  indorser  for  the  amount  of 
the  bill.  (Story,  Sec.  217;  Robertson  v.  Kensington,  4 
Taunt.  30.)  But  such  indorsements  are  of  doubtful  va- 
lidity. 

A  restrictive  indorsement  makes  the  indorsee  the 
holder  of  the  bill,  but  states  that  he  is  not  the  beneficial 
owner.  It  gives  authority  to  deal  with  the  bill  as  di- 
rected, but  does  not  transfer  the  ownership.  The  in- 
dorsee cannot  transfer  his  rights  unless  expressly  author- 
ized in  the  restrictive  indorsement.*  He  may  sue  and 
collect  the  bill. 

A  mere  statement  in  the  indorsement  that  the  value 
was  furnished  by  another  will  not  make  it  restrictive. 
(Potts  v.  Reed,  6  Esp.  57.) 

When  the  restricted  indorsee  has  the  right  to  indorse 
the  bill  his  indorsee  takes  affected  by  the  same  restric- 
tions, the  relation  between  indorser  and  indorsee  being 
that  of  principal  and  agent.  (Treuttel  v.  Barandon, 
8  Taunt.  100.) 

Sec  809.  WHO  MAY  NEGOTIATE  A  BILL. 
— In  general  a  bill  must  be  negotiated  by  the  de  facto 
holder,  that  is,  the  person  in  possession  of  a  bill  and 
to  whom  it  is  payable,  whether  his  possession  be  lawful 
or  not,  and  in  such  sense  it  is  broader  in  significance 
than  the  term  "holder,"  which  customarily  means  lawful 
holder.   If  the  bill  is  payable  to  bearer  the  person  in  pos- 

*Illustrations  of  restrictive  indorsements  given  by  Benjamin 
are:  "Pay  D  or  order  for  the  use  of  X,"  "pray  pay  the  money 
to  my  use,"  etc.     (Art.  124.) 


90  NEGOTIABLE    INSTRUMENTS. 

session  is  the  de  facto  holder,  but  if  the  bill  is  payable  to 
order  the  de  facto  holder  must  have  possession  and  be 
the  person  to  whom  it  is  payable.  But  if  the  name  is 
misspelled,  or  wrongly  designated,  the  holder  may  nego- 
tiate by  writing  the  name  as  in  the  bill,  and  then  his 
true  name.  (Bryant  v.  Eastman,  7  Cush.  11;  Redmond 
v.  Stansbury,  24  Mich.  445.)  So  the  person  who  ob- 
tains title  by  transfer  by  act  of  law  is  a  de  facto  holder. 
But  two  or  more  persons  to  whom  the  bill  is  payable, 
not  being  partners,  must  each  indorse  the  bill,  unless  one 
has  authority  to  indorse  for  all.  (Ryhiner  v.  Feickert, 
92  111.  305.) 

Sec.  810.  TO  WHOM  A  BILL  MAY  BE  NE- 
GOTIATED.— A  bill  may  be  issued  to  any  person, 
including  the  drawer,  drawee,  acceptor  or  prior  in- 
dorsers,  and  may  be  reissued  by  such  indorsees.  But 
in  case  a  bill  is  indorsed  back  to  a  party  already  liable 
thereon,  he  cannot  sue  the  intermediate  parties,  and  in 
case  it  is  indorsed  to  the  acceptor  at  or  after  maturity  it 
is  discharged.  (Bank  v.  Thompson,  124  Mass.  515.) 
A  special  indorsee  should  be  designated  with  the  same 
certainty  as  in  the  case  of  an  original  payee.  (Murray 
v.  East  India  Co.,  5  B.  k  Ad.  204.) 

Sec.  811.  WHEN  A  BILL  MAY  BE  NEGO- 
TIATED.— While  a  complete  bill  may  be  negotiated 
at  any  time  before  it  is  discharged,  the  character  and 
incidents  affecting  it  depend  on  the  time  when  it  is 
negotiated,  as,  for  example,  whether  indorsed  before  or 
after  due.  Prima  facie  the  bill  is  presumed  to  have  been 
negotiated  when  issued  or  before  maturity,  and  this  pre- 


ACCEPTANCE  AND  TRANSFER.       91 

sumption  may  be  rebutted  by  suspicious  circumstances. 
(Anderson  v.  Weston,  6  Bing.,  N.  C,  296;  Bounsall  v. 
Harrison,  1  M.  &  W.  611.) 

Sec.  812.  SAME  SUBJECT— OVERDUE 
PAPER. — A  bill  that  is  overdue,  that  is,  whose  time 
of  payment  has  matured,  and  is  not  discharged  may  be 
negotiated  as  other  bills,  except  that  the  fact  of  its  being 
overdue  is  equivalent  to  notice  to  the  holder  of  all  facts 
which,  if  known  before  maturity,  would  destroy  his  title 
as  a  bona  fide  holder  without  notice.  This  characteris- 
tic of  overdue  paper  is  called  an  "equity  attaching  to 
the  bill."  (Kittle  v.  DeLameter,  3  Nebr.  325;  Natl. 
Bank  v.  Texas,  20  Wall.  72.) 

Bills  payable  in  installments  are  considered  overdue 
in  toto,  when  any  installment  is  past  due,  but  not  from 
the  fact  that  interest  is  past  due.  (Field  v.  Tibbetts, 
57  Me.  358;  Kelley  v.  Whitney,  45  Wis.  110.)  A  bill 
of  exchange  payable  on  demand  and  not  dishonored 
by  non-acceptance  is  not  overdue  unless  it  appears  on  its 
face  to  have  been  in  circulation  an  unreasonable  time. 
(La  Due  v.  Bank,  31  Minn.  33.)  Bills  payable  on 
demand  are  overdue  after  the  expiration  of  the  last  day 
of  grace.  (Chambiss  v.  Matthews,  57  Miss.  306.)  The 
holder's  title  after  maturity  will  be  as  good  as  that  of 
the  previous  holder,  in  case  of  a  defective  title  in  one 
of  the  parties.     (Hereth  v.  Bank,  34  Ind.  380.) 

The  existence  of  a  set-off  or  matter  of  counter-claim 
against  the  holder  of  a  bill  is  not  an  equity  which  at- 
taches to  an  overdue  bill.  (Richardson  v.  Daily,  34  la. 
427;  Young  v.  Schroner,  80  Pa.  St.  463.)     But  this 


92  NEGOTIABLE    INSTRUMENTS. 

principle  is  denied  by  other  authorities.  (Armstrong 
v.  Chadwick,  127  Mass.  156;  Pugh  v.  Grant,  85  N.  C. 
39.)  But  if  the  transfer  was  without  consideration,  or 
in  violation  of  an  agreement  not  to  negotiate  after  ma- 
turity, the  equity  attaches.  But  the  lack  of  considera- 
tion as  between  an  accommodation  maker  and  the  holder 
is  not  an  equity  attaching  to  the  instrument.  (Davis 
v.  Miller,  14  Grat.  1;  contra,  Kellogg  v.  Barton,  12 
Allen  527.)  Payment  and  other  forms  of  discharges 
disentitle  the  holder  after  maturity,  but  these  are  rather 
regarded  as  grounds  of  nullifying  the  instrument  than 
as  equities  attaching  to  the  bill.  Part  payment  is  re- 
garded as  an  equity  attaching  to  an  overdue  bill.* 

Sec.  813.  LIABILITY  OF  THE  INDORSER 
AND  RIGHTS  OF  THE  INDORSEE.— By  nego- 
tiation the  indorser  warrants  that  the  paper  is  a  valid 
obligation  in  every  particular,  as  that  the  parties  are 


*Graves  v.  Key,  3  B.  and  Ad.  319;  Lanati  v.  Bayhi,  31  La. 
Ann.  229.  "The  position  of  a  holder  who  takes  a  bill  when 
overdue  is  this;  he  is  a  holder  with  notice.  He  may  or  may 
not  be  a  holder  for  value,  and  his  rights  will  be  regulated  accord- 
ingly. He  is  a  holder  with  notice  for  this  reason :  he  takes  a 
bill  which,  on  the  face  of  it,  ought  to  have  got  home  and  to  have 
been  paid.  He  is  therefore  bound  to  make  two  inquiries:  1. 
Has  what  ought  to  have  been  done  really  been  done,  i.  e.,  has 
the  bill  in  fact  been  discharged?  2.  If  not,  why  not?  Is  there 
any  equity  attaching  thereto,  i.  e.,  was  the  title  of  the  person  who 
held  it  at  maturity  defective?  If  his  title  to  the  instrument 
was  complete,  it  is  immaterial  that  for  some  collateral  reason, 
e.  g.,  set-off,  he  could  not  have  enforced  the  bill  against  some 
one  or  more  of  the  parties  liable  thereon."  (Benj.'s  Chalmers 
B.  N.  and  Checks,  Art.  134n.) 


ACCEPTANCE  AND  TRANSFER.       93 

competent  to  contract,  the  genuineness  of  all  the  signa- 
tures', and  that  the  paper  is  not  in  violation  of  the  law 
for  any  reason;  and  further  he  guarantees  by  a  full 
indorsement,  that  the  paper  will  be  honored  by  accept- 
ance and  payment,  and  for  this  guaranty  he  is  liable 
to  each  subsequent  indorsee.  These  rights  inure  to  the 
de  facto  holder  of  the  bill,  and  he  can  sue  upon  the  bill 
or  further  negotiate  it,  and  though  guilty  of  a  fraud  in 
parting  with  it,  give  title  to  abona  fide  holder  for  value 
without  notice  who  takes  it  before  maturity.  Any  ir- 
regularity, as  a  torn  paper,  patent  on  the  face  of  a  bill 
is  equivalent  to  notice,  and  the  holder  who  takes  such 
an  instrument  will  not  be  considered  an  innocent  holder. 
(Ingham  v.  Primrose,  7  C.  B.  N.  S.  82.) 

In  an  action  by  the  de  facto  holder  it  may  be  shown 
that  he  holds  adversely  to  the  true  owner,  and  that  he 
is  agent  or  trustee  for  another  person,  and  then  any  de- 
fense or  set-off  available  against  such  person  is  available 
against  the  holder.  (Benj.'s  Chalmers,  B.  N.  &  C,  Art. 
141.) 

An  action  at  law  may  be  maintained  upon  a  lost  bill, 
when  it  is  shown  to  have  been  destroyed;  or  that  it  has 
come  into  the  possession  of  the  defendant  since  its  loss; 
or  that  the  defendant  is  protected  from  future  liability 
by  the  statute  of  limitations.  This  action  upon  lost 
instruments  is  now  regulated  in  England  and  some  of 
the  States  by  statute.  The  holder  has  also  a  remedy  in 
a  court  of  equity  by  giving  a  bond  of  indemnity  against 
future  liability  on  the  bill.  (Torrey  v.  Foss,  40  Me.  74; 
Hagerstown  v.  Adams  Ex.  Co.,  45  Pa.  St.  419.) 


CHAPTER  VI. 

DUTIES  OF  THE  HOLDER. 

Sec.  814.  IN  GENERAL.— The  duties  of  the 
holder  of  a  bill  include  presentment  for  acceptance,  pre- 
sentment for  payment,  protesting  for  non-acceptance  or 
non-payment,  the  giving  notice  of  dishonor  to  all  parties 
secondarily  liable  on  the  instrument  whom  he  desires  to 
hold  liable,  and  the  delivery  of  the  paper  on  receiving 
payment.  In  the  preceding  chapter  we  have  discussed 
at  more  or  less  length  the  subjects  of  presentment, 
whether  for  acceptance  or  payment,  and  to  this  the  stu- 
dent is  now  referred. 

Sec.  815.  HOW  TO  ASCERTAIN  THE 
PROPER  DATE  FOR  PRESENTMENT.— In 
computing  time  on  all  commercial  paper  the  day  of  date 
is  excluded,  so  where  the  paper  is  payable  one  year  from 
date  it  will  mature  on  the  first  anniversary  of  that  date. 
Where  days  of  grace  are  allowed  the  date  of  maturity 
will  be  three  days  later,  on  the  last  day  of  grace.  (Henry 
v.  Jones,  8  Mass.  453.)  When  the  term  month  is  used  it 
is  held  to  mean  a  calendar  month  and  not  a  lunar  month. 
In  an  instrument  payable  a  stated  number  of  days  after 
sight,  or  after  date,  the  day  of  sight  or  date  is  excluded 
and  the  day  of  payment  included  in  the  computation. 

Presentment  for  payment  cannot  be  made  on  a  Sun- 
day or  legal  holiday,  in  such  case,  and  when  days  of 

94 


DUTIES    OF    THE    HOLDER.  95 

grace  are  not  allowed,  the  note  maturing  on  a  holiday 
or  Sunday,  as  the  maker  cannot  be  compelled  to  pay 
sooner  than  he  had  promised,  the  note  or  bill  will  have 
to  be  presented  on  the  next  business  day.  But  where 
days  of  grace  are  allowed  and  the  last  day  of  grace  is 
a  holiday,  the  demand  should  be  made  on  the  preceding 
day,  since  these  days  are  a  matter  of  indulgence  to  the 
maker  or  acceptor  in  their  origin.  (Barrett  v.  Allen, 
10  Ohio  426;  Shepherd  v.  Spates,  4  Md.  400.) 

Sec.  816.  MODE  OF  PRESENTMENT.— As  a 
general  rule  the  presentment  is  made  by  the  holder  or 
his  agent  presenting  the  bill  to  the  acceptor  and  demand- 
ing payment.  But  where  the  bill  is  payable  at  a  bank, 
it  is  sufficient  if  the  paper  is  there  in  possession  of  one 
entitled  to  receive  payment.  By  usage  the  banks  in 
some  States  give  notice  to  the  promisor  a  few  days  be- 
fore maturity  of  the  fact  that  the  paper  will  be  due  on 
a  named  day,  and  it  has  been  held  that  this  preliminary 
notice  will  take  the  place  of  a  formal  presentment  on  the 
day  of  maturity.     (Weld  v.  Gorham,  10  Mass.  366.) 

PROTEST. 

Sec.  817.  MEANING  AND  PURPOSE  OF 
PROTEST. — "Protest"  means  a  formal  notarial  cer- 
tificate attesting  the  dishonor  of  a  bill.  It  must  be  made 
by  a  notary  public  or  other  person  authorized  to  act  as 
such,  except  where  a  notary  cannot  be  obtained,  in  which 
case  it  may  be  made  by  any  respectable  person  in  the 
presence  of  two  witnesses.  (Burke  v.  McKay,  2  How. 
66.) 


96  NEGOTIABLE    INSTRUMENTS. 

The  purpose  of  the  protest  and  certificate  is  to  furnish 
legal  evidence  of  the  fact  that  proper  demand  had  been 
made  upon  the  promisor  and  notice  of  dishonor  given 
in  a  suit  by  the  holder  against  the  prior  parties.  It  does 
away  with  the  necessity  of  witnesses  to  prove  these  facts, 
and  being  so  much  more  expedient  in  cases  of  foreign 
bills,  it  has  long  been  the  universal  rule  of  the  law  mer- 
chant in  England  and  America  that  such  bills  must  be 
protested  in  order  to  hold  the  prior  parties.  Inland 
bills,  or  domestic  paper,  being  of  easier  proof,  unless 
the  statutes  require  it,  need  not  be  protested  for  non- 
payment, and  protest  of  such  paper  independent  of  stat- 
ute would  have  no  effect.  (Daniel,  Sec.  927.)  *  The  con- 
venience of  proving  the  essential  facts  of  •dishonor  by 
notarial  certificate  has  caused  the  enactment  in  most 
of  the  States  of  statutes  requiring  or  permitting  the  pro- 
testing of  inland  bills  and  notes.  (Tiedeman,  Com.  Pap., 
Sec.  321.) 

When  a  foreign  bill  of  exchange  is  dishonored  it  must 
be  duly  protested  for  non-acceptance  or  non-payment, 
as  the  case  may  be  in  order  that  the  holder  may  preserve 
his  right  of  recourse  against  the  drawer  and  indorsers. 
This  is  indispensable.  (Union  Bank  v.  Hide,  6  Wheat. 
572.) 

If  a  bill  of  exchange  is  dishonored  by  non-acceptance, 
and  the  holder  without  proper  excuse  neglects  to  protest 

*If  the  holder  has  paper  protested  for  non-payment  when  the 
law  merchant  or  statutes  do  not  require  or  allow  protest,  the 
notary  public  cannot  recover  his  fees  of  the  parties  to  the  paper. 
(Cramer  v.  Eagle  Mfg.  Co.,  23  Kan.  400.) 


DUTIES    OF    THE    HOLDER.  97 

it,  the  drawer  and  indorsers  are  discharged  as  regards 
such  holder  and  all  subsequent  holders,  who  have  knowl- 
edge that  the  bill  has  been  dishonored,  but  such 
parties  are  not  discharged  as  regards  a  holder  who  takes 
such  a  bill  before  maturity  and  without  knowledge  of 
its  dishonor.  (Benj.'s  Chalmers,  B.  N.  &  C,  Art.  181.) 
So  a  bill  dishonored  for  non-acceptance  must  be  pro- 
tested, but  when  this  is  done  it  need  not  be  subsequently 
protested  for  non-payment.  (Whitehead  v.  Walker,  9 
M.  &W.  516.) 

Sec.  818.  NOTING,  OR  PREPARATION  FOR 
PROTEST.— As  we  have  seen  (Chapter  V),  any 
holder  may  present  the  bill  or  note  for  payment  and  re- 
ceive payment,  but  in  case  payment  is  refused  and  pro- 
test becomes  necessary,  the  notary  public  who  makes  the 
protest  is  obliged  by  law  to  make  a  second  demand,  so 
that  he  can  of  his  personal  knowledge  certify  to  the  fact 
of  dishonor.  In  England  the  preliminary  presentment 
is  made  by  the  notary's  clerk,  but  in  America  such  a  pre- 
sentment is  insufficient  unless  authorized  by  statute  or 
custom  of  the  place.  (Bank  v.  Barnum,  49  N.  Y.  275; 
Cribbs  v.  Adams,  13  Gray  597.) 

"Noting"  means  a  minute  made  by  the  notary  public 
on  a  dishonored  bill  at  the  time  of  its  dishonor.  The 
"noting"  consists  merely  of  the  notary's  initials,  date, 
charges,  and  cause  of  dishonor,  as  "no  effects,"  and  may 
be  made  on  the  back  of  the  instrument  or  on  a  ticket  at- 
tached to  it.  (Brooks'  Notary,  4th  ed.,  pp.  80-82.) 
This  noting  of  the  dishonor  is  for  the  convenience  of  the 
notary,  who  by  the  law  merchant  is  required  to  make 


98  NEGOTIABLE    INSTRUMENTS. 

the  protest  on  the  same  day  that  the  presentment  and 
demand  were  made,  and  this  short  form  or  "noting"  is 
equivalent  to  the  protest  itself,  and  the  more  formal 
protest  may  be  made  out  later  from  the  "noting."  The 
notary  is  not  allowed  to  trust  his  memory,  and  if  the 
dishonor  is  not  protested  or  noted  on  the  same  day,  the 
drawer  and  indorsers  will  be  discharged.  (Tiedeman, 
Com.  Pap.,  Sec.  325;  Dennistoun  v.  Stewart,  17  How. 
606;  Chitty  on  Bills  377.)* 

Sec.  819.  WHAT  THE  CERTIFICATE  OF 
PROTEST  SHOULD  CONTAIN.— The  protest 
certificate  should  contain  a  copy  of  the  bill  or  the  bill 
itself  annexed ;  a  statement  of  the  parties  for  whom  and 
against  whom  the  instrument  is  protested;  the  date  of 
protest  and  the  place  where  made;  a  statement  that  ac- 
ceptance or  payment  was  demanded  by  the  notary;  the 
terms  of  the  answer,  if  any,  or  a  statement  that  no 
answer  was  given,  or  that  the  drawee  or  acceptor  could 
not  be  found;  a  claim  for  protection  from  the  parties 
liable,  and  the  signature  and  seal  of  the  notary  making 
the  protest.     (Brooks'  Notary,  4th  ed.,  p.  82.) 

A  bill  must  be  protested  at  the  place  where  it  is  dis- 
honored, but  if  the  domicile  and  place  of  payment  are 
different  it  may  be  protested  at  either  place.  (Tiede- 
man, Com.  Pap.,  Sec.  323.)     When  the  laws  are  in  con- 

*A  foreign  bill  should  be  noted  for  protest  on  the  day  that 
it  is  dishonored.  When  a  bill  has  been  duly  noted,  the  formal 
protest  may  be  extended  at  any  time.  (Benj.'s  Chalmers  B. 
N.  and  Checks,  Art.  178.)  But  in  practice  the  noting  is  fre- 
quently made  on  the  day  after  dishonor.  (Brooks'  Notary  Pub- 
lic, 80.) 


DUTIES    OF    THE    HOLDER.  99 

flict,  the  validity  of  the  protest  will  be  determined  by 
the  law  of  the  place  where  it  is  made.  (Carter  v.  Bur- 
ley,  9  N.  H.  558.) 

Sec.  820.  PROTEST  EVIDENCE  OF  WHAT 
FACTS. — The  notary's  certificate  of  protest  is  only 
evidence  of  those  facts  which  are  stated  therein  and 
which  are  the  duty  of  the  notary  to  note  in  making 
presentment  and  demand  for  payment.  Collateral  facts 
noted  by  the  certificate  must  be  proved  by  other  evi- 
dence. So  where,  as  is  usually  the  custom,  the  notary 
sends  out  the  notices  of  dishonor  to  the  drawer  and 
indorsers,  as  this  duty  is  not  required  of  him  by  the  law 
merchant,  his  certificate  in  regard  to  such  notices  being 
sent  out  is  not  legal  evidence  of  the  fact.  But  statutes 
in  the  different  States  usually  provide  that  a  notarial 
certificate  of  protest  will  be  evidence  of  any  fact  therein 
stated  in  respect  to  notice.  (Tiedeman,  Com.  Pap.,  Sec. 
827.)  The  certificate  of  protest  may  fail  to  state  all  the 
necessary  facts,  and  in  such  a  case  the  missing  facts 
are  not  as  a  rule  to  be  supplied  by  implication  or  infer- 
ence. (Bank  v.  Smith,  11  Wheat.  171;  Bradshaw  v. 
Hedge,  10  la.  402.) 

A  protest  certificate  is  only  prima  facie  evidence,  and 
all  facts  stated  therein  may  be  disproved  by  competent 
evidence  showing  the  statements  to  be  untrue.  (How- 
ard Bank  v.  Carson,  50  Md.  27.) 

Sec.  821.  HOW  PROTEST  MAY  BE  WAIVED 
OR  DISPENSED  WITH.— Protest  is  waived  by 
waiver  of  a  presentment  for  payment,  and  protest  is 
dispensed  with  by  the  same  circumstances  which  would 


100  NEGOTIABLE    INSTRUMENTS. 

dispense  with  notice  of  dishonor  in  the  case  of  an  inland 
bill,  and  circumstances  excusing  delay  in  giving  notice 
of  dishonor  will  excuse  delay  in  protesing.  (Moyer's 
Appeal,  87  Pa.  St.  129.)* 

Sec.  822.  PROTEST  FOR  BETTER  SECU- 
RITY.— When  the  acceptor  of  a  bill  of  exchange  be- 
comes bankrupt  or  makes  an  assignment  before  its  ma- 
turity, it  may  be  protested  for  better  security.  ( Brooks' 
Notary,  p.  88,  form  p.  219.) 

When  a  bill  of  exchange  is  dishonored  by  non-ac- 
ceptance or  non-payment,  and  a  reference  to  a  case  of 
need  has  been  made,  the  holder  should  (perhaps)  pre- 
sent the  bill  to  the  case  of  need  for  acceptance  or  pay- 
ment supra  protest,  to  preserve  his  rights  against  prior 
parties.  But  it  is  optional  to  do  so,  when  the  reference 
to  a  case  of  need  is  given  by  an  indorser.  (Benj.'s  Chal- 
mers, B.  N.  k  C,  Art  184.) 

So  a  bill  must  be  presented  to  the  drawee  or  acceptor 
and  duly  noted  for  protest  before  it  can  be  presented  to 
the  acceptor  supra  protest;  an  omission  by  the  holder  to 
so  protest  the  bill  accepted  supra  protest  will  discharge 
such  acceptor.  And  when  dishonored  by  the  acceptor 
after  protest,  it  is  held  to  be  again  necessary  to  protest 
it  in  order  to  charge  the  prior  parties.  ( Chitty,  p.  242 ; 
Brooks'  Notary,  p.  108.) 

NOTICE  OF  DISHONOR. 

Sec.  823.  MEANING  AND  PURPOSE  OF  NO- 
TICE.— Notice  of  dishonor  means  a  formal  notice  of 


'See  post,  Sees.  826-827. 


DUTIES    OF    THE    HOLDER.  101 

dishonor  to  parties  liable  on  the  bill,  and  is  not  excused 
because  the  drawer  or  indorser  had  notice  that  the  bill 
had  been  dishonored.  It  is  a  duty  of  the  holder,  and  a 
condition  precedent  to  his  being  protected  by  previous 
parties,  that  he  shall  give  immediate  notice  of  dishonor 
by  non-acceptance  or  non-payment  to  all  prior  parties 
whom  he  expects  to  hold  liable.  If  this  is  not  done  in 
case  of  dishonor  for  non-acceptance  the  drawer  and  in- 
dorsers  are  discharged  as  regards  the  holder  at  the  time 
of  dishonor,  and  all  subsequent  holders  with  notice 
thereof,  but  not  as  regards  a  subsequent  holder  who 
takes  the  bill  before  maturity  and  without  notice  that 
it  has  been  dishonored. 

The  failure  of  the  holder  to  give  due  notice  of  dis- 
honor for  non-payment,  discharges  the  drawer  and  in- 
dorsers  from  liability  on  the  instrument,  and  also  from 
any  liability  on  the  consideration  for  which  it  was  given. 
(Allen  v.  Eldred,  50  Wis.  136,  Rucker  v.  Hiller,  16 
East  43;  Chitty,  488.) 

Sec.  824.  MEANING  OF  DUE  NOTICE;  BY 
WHOM  AND  WHEN  TO  BE  GIVEN.— By  due 
notice  is  meant  notice  given  by  the  proper  party,  in  the 
proper  form,  at  the  proper  time,  in  the  proper  manner 
and  to  the  proper  party. 

1.  The  proper  party  to  give  the  notice  is  the  holder 
or  his  authorized  agent,  or  an  indorser  who  is  at  the  time 
of  giving  it  liable  on  the  bill  and  who  has  a  right  of  re- 
course against  the  party  to  whom  notice  is  given.  That 
is,  the  notice  must  be  given  by  a  party  to  the  paper  or  his 
agent,  and  a  total  stranger  cannot  give  proper  notice 


102  NEGOTIABLE    INSTRUMENTS. 

of  dishonor.  The  notary  may  give  the  notice  as  agent 
for  the  holder,  and  so  may  any  bank  holding  the  paper 
for  collection.  (Shedd  v.  Brett,  1  Pick.  401;  Bank  v. 
Vaughan,  30  Mo.  90.)  By  holder  is  meant  the  de  facto 
holder.  ( Story,  Sec.  303.)  A  party  entitled  to  give  no- 
tice may  constitute  the  drawee  or  acceptor  his  agent  for 
the  purpose  of  giving  notice  of  dishonor.  (Harrison  v. 
Ruscoe,  15  M.  &  W.  231 ;  Bank  v.  Ryerson,  23  la.  508.) 
The  notice  when  given  by  an  agent  may  be  given  in  his 
own  name  or  the  name  of  the  principal.  (Harrison  v. 
Ruscoe,  supra.)  So  if  the  holder  be  dead,  notice  of  dis- 
honor may  be  given  by  his  personal  representatives. 
(White  v.  Stoddard,  11  Gray  258.) 

Notice  of  dishonor  given  by  or  on  behalf  of  the  holder 
enures  for  the  benefit  of  all  subsequent  holders,  and  all 
prior  indorsers  liable  on  the  bill  who  have  a  right  of  re- 
course against  the  party  to  whom  notice  is  given.  ( Staf- 
ford v.  Yates,  18  Johns.  327.)  And  notice  of  dishonor 
given  by  or  on  behalf  of  an  indorser  entitled  to  give  no- 
tice, enures  for  the  benefit  of  the  holder  and  all.indorsers 
liable  on  the  bill  who  have  a  right  of  recourse  against 
the  party  given  notice.* 


*In  Bealc  v.  Parish,  20  N.  Y.  407,  it  is  held  that  notice  though 
duly  sent  by  the  holder  does  not  inure  for  the  benefit  of  a  prior 
indorser,  unless  it  reaches  the  party  to  whom  it  is  sent. 

"If  the  holder  or  his  agent,  gives  notice  to  the  immediate 
indorser  alone,  and  he  (the  notified  indorser)  then  sends  notices 
to  the  other  prior  indorsers,  these  prior  indorsers  will  not  only 
be  bound  to  the  indorsee,  who  gives  the  notice,  but  also  to  the 
holder.  But  in  order  that  an  indorser's  notice  may  bind  another 
indorser,  the  liability  of  the  indorser  giving  the  notice,  must  be 


DUTIES    OF    THE    HOLDER.  103 

2.  The  notice  may  be  verbal  or  written,  and  consists 
in  the  communication  of  the  fact  of  dishonor  by  the  per- 
son whose  duty  it  is  to  give  it.  ( Thompson  v.  Williams, 
14  Cal.  160.)  When  verbal  it  is  not  necessary  to  be  as 
formal  as  when  written,  for  the  party  may  inquire  if  he 
is  not  fully  informed.  "In  order  that  the  notice  may  be 
complete,  it  should  contain,  (1)  a  sufficient  description 
of  the  bill  or  note;  (2)  a  statement  that  it  had  been 
presented  for  acceptance  or  payment,  and  had  been  dis- 
honored; (3)  the  statement  that  the  paper  had  been  pro- 
tested, and  (4)  an  announcement  of  the  intention  of  the 
holder  to  look  to  the  party  addressed  for  payment." 
(Tiedeman,  Com.  Pap.,  Sec.  344.) 

The  notice  of  dishonor  should  as  a  general  rule  indi- 
cate on  its  face,  either  by  express  statement  or  by  neces- 
sary or  reasonable  implication,  that  the  paper  had  been 
presented  and  dishonored.  This  is  the  earlier  English 
rule,  and  prevails  in  America.  (Solarte  v.  Palmer,  1 
Bing.,  N.  C.  194 ;  Gilbert  v.  Dennis,  3  Metcalf  495. )  A 
statement  of  non-payment  is  not  sufficient  without  a 
statement  that  presentment  and  demand  had  been  made, 
but  if  the  word  "dishonored"  is  used  it  is  held  to  be  suffi- 
cient without  further  statement  of  presentment  and  de- 
mand. (Page  v.  Gilbert,  60  Me.  488;  Rowland  v. 
Sprinjett,  14  M.  &  W.  7.)     So  if  an  allegation  of  pro- 


fixed  by  having  himself  received  the  required  notice  of  dishonor." 
(Tiedeman,  Com.  Paper,  Sec.  335.)  If  he  has  not  received  this 
notice  he  is  discharged  from  liability,  and  may  properly  be 
treated  as  a  stranger  to  the  paper.  (Id.  Turner  v.  Leach,  4 
B.  and  Aid.  451.) 


104  NEGOTIABLE    INSTRUMENTS. 

test  or  words  from  which  it  may  be  inferred  is  used,  as 
"your  bill  is  unpaid,  noting  5  s.,"  in  connection  with  a 
statement  of  non-payment  it  will  be  sufficient.  (Arm- 
strong v.  Christiana,  6  C.  B.  G87.)  And  in  general  the 
notice  need  not  expressly  state  that  the  bill  has  been  pre- 
sented and  dishonored,  or  protested,  if  protest  be  neces- 
sary, or  that  the  party  to  whom  notice  is  sent  is  called 
on  to  pay  the  bill.  It  is  sufficient  if  these  facts  can  rea- 
sonably be  inferred  from  the  terms  of  the  notice. 
(Benj.'s  Chalmers,  B.  N.  &  C,  Art.  199.)  And  a  mis- 
description of  a  bill  will  not  vitiate  notice  unless  the  party 
to  whom  notice  is  given  is  in  fact  misled  thereby.*  (Gill 
v.  Palmer,  29  Conn.  54>;  Mills  v.  Bank,  11  Wheat. 
431.) 

3.    The  proper  time  to  give  notice  of  dishonor  is  as 


*"A  notice  to  the  drawer  which  describes  the  bill  as  payable 
at  the  'S  Bank,'  when  in  fact  it  was  payable  at  the  'T  Bank,' 
or  which  describes  a  bill  of  exchange  as  a  note,  or  which  trans- 
fers the  names  of  drawer  and  acceptor,  or  which  describes  the 
acceptor  by  a  wrong  name,  or  which  misstates  the  sum  payable, 
may  be  sufficient."  (Benj.'s  Chalmers  B.  N.  and  Checks,  Art. 
199  111.) 

"A  full  description  properly  made,  should  give  the  date  of 
the  paper,  by  whom  executed,  payable  to  whom,  for  what  amount, 
when  due,  by  whom  indorsed,  and  in  the  case  of  bills  of  exchange, 
on  whom  it  is  drawn.  If  payable  at  a  particular  place  the  place 
should  be  stated."  (Tiedeman,  Com.  Paper,  Sec.  345.)  But 
all  of  this  particularity  is  not  absolutely  necessary  to  the  suf- 
ficiency of  the  notice,  and  as  stated  by  Benjamin,  Art.  199, 
notice  is  sufficient  which  so  identifies  the  bill  that  the  recipient  is 
not  misled,  and  informs  him  that  the  bill  has  been  dishonored 
by  non-acceptance  or  non-payment,  and  that  he  is  held  liable. 


DUTIES    OF    THE    HOLDER.  105 

soon  as  the  bill  has  been  dishonored,  and  it  must  be  given 
within  a  reasonable  time  after  dishonor,  and  cannot  be 
given  prior  to  dishonor.  (Story  on  Bills,  Sec.  285; 
Chitty  on  Bills,  366-544.)  Reasonable  time  within 
which  to  give  notice  may  be  a  mixed  question  of  law  and 
fact,  and  in  determining  reasonable  time  non-business 
days  are  excluded.  By  the  present  rule  of  the  law  mer- 
chant the  holder  is  given  imtil  the  expiration  of  the  next 
day  after  dishonor,  in  which  to  give  notice;  in  case  the 
holder  lives  in  a  different  place  from  the  parties  notified 
he  has  until  the  last  mail  on  the  day  after  dishonor,  and 
in  case  this  mail  leaves  at  an  unreasonable  hour,  he  has 
until  the  next  mail  to  send  the  notices.  ( Lenox  v.  Rob- 
erts, 2  Wheat.  373;  Bank  v.  Stedman,  3  Conn.  489.) 

When  the  person  giving  notice  and  the  party  to  whom 
notice  is  to  be  given  live  in  the  same  place,  the  notice 
must,  in  the  absence  of  special  circumstances,  be  received 
by  such  party  at  a  reasonable  hour  on  the  day  after  the 
sender  became  entitled  to  give  notice,  and  if 
such  notice  is  to  be  left  at  a  place  of  business  it 
should  be  received  during  business  hours.  (Adams  v. 
Wright,  14  Wis.  408.)  If  the  notice  is  sent  by  mail  it 
should  be  so  sent  that  it  will  reach  the  party  on  the  day 
after  the  sender  became  entitled  to  give  notice;  and  if 
sent  by  other  means  than  the  mail  it  should  reach  the 
party  to  be  notified  at  a  reasonable  hour  on  the  same 
day  it  would  have  been  received  by  due  course  of  mail. 
It  was  formerly  a  general  rule  that  when  the  parties  to 
be  notified  and  the  holder  lived  at  the  same  place  that 
personal  notice  should  be  given  in  all  cases,  and  a  notice 


106  NEGOTIABLE    INSTRUMENTS. 

by  mail  would  not  be  sufficient  unless  actually  received. 
(Busard  v.  Levering,  6  Wheat.  104.)  But  now  in  case 
of  cities  in  which  there  is  postal  delivery  the  holder  is 
protected  in  case  he  has  duly  mailed  a  properly  addressed 
letter  containing  the  notice,  though  by  the  delay  or  de- 
fault of  the  mail  it  is  never  received.  (Bank  v.  Warner, 
10  Allen  522;  Forbes  v.  Natl.  Bank,  10  Nebr.  338.) 
And  in  some  States  statutes  provide  for  the  mailing  of 
notices  of  protest  where  parties  reside  in  same  place. 
(Shoemaker  v.  Bank,  59  Pa.  St.  83.)  In  cases  where 
the  parties  and  the  holder  live  in  different  post-office  de- 
liveries, and  due  notice  is  sent  by  mail,  the  notice  is  suffi- 
cient though  not  received.  (Munn  v.  Baldwin,  6  Mass. 
316;  Walters  v.  Brown,  15  Md.  285.)  * 

4.  In  general,  now  notices  of  dishonor  may  be  sent 
by  mail,  but  in  case  personal  notice  should  be  or  is  sent, 
it  must  be  sent  to  the  residence  or  place  of  business  of  the 
party  to  be  notified,  delivery  at  either  place  will  be  suf- 
ficient, and  in  his  absence  it  may  be  left  with  a  person 
in  charge,  or  put  into  the  keyhole  or  under  the  door. 
(Stewart  v.  Eden,  2  Caines  121;  Tiedeman,  Com.  Pap., 
Sec.  340.) 

5.  The  proper  party  or  parties  to  be  given  notice  are 

*The  holder  or  other  party  person  entitled  to  give  notice  of 
dishonor  must  give  notice  to  a  remote  party  within  the  same 
limits  of  time  that  is  required  in  the  case  of  an  immediate  party. 
(Benj.'s  Chalmers  B.  N.  and  Checks,  Art.  197.)  That  is,  the 
holder  must  give  notice  to  all  prior  parties  whom  he  desires  to 
hold  liable  at  the  same  time,  and  if  he  does  not  he  cannot  look 
to  them  unless  an  indorser  has  given  the  required  notice  in  time 
and  such  notice  enures  to  his  benefit. 


DUTIES    OF    THE    HOLDER.  107 

the  drawer,  indorser,  or  indorsers,  or  their  authorized 
agent  or  other  person  entitled  to  receive  notice  for  them. 
That  is,  the  notice  must  be  given  to  all  persons  seconda- 
rily liable  whom  the  holder  wishes  to  charge.  And  notice 
should  be  given  to  indorsers  who  have  indorsed  for  the 
purpose  of  collection,  and  indorsers  of  overdue  paper. 
(Tiedeman,  Com.  Pap.,  Sec.  336.)  Where  there  are 
two  or  more  joint  drawers  or  indorsers  who  are  not  part- 
ners, notice  of  dishonor  must  be  given  to  them  all  in 
order  to  bind  either.  (People's  Bank  v.  Keech,  26  Md. 
521.)  If  the  drawer  or  indorser  is  a  bankrupt,  notice 
should  be  given  to  the  assignee ;  and  if  the  part}'-  sought 
to  be  notified  is  known  to  be  dead  the  notice  should  be 
addressed  to  the  personal  representative  by  name  if  he 
can  be  ascertained,  otherwise  to  the  family  residence  of 
the  deceased.  (Goodnow  v.  Warren,  122  Mass.  79; 
Bank  v.  Birch,  17  Johns.  25.) 

It  is  the  duty  of  the  drawer  or  indorsers,  if  absent 
from  their  place  of  business  or  residence,  to  see  that 
there  is  some  one  there  to  receive  notice  on  their  behalf. 
(N.  Y.  Bank  v.  Selma  Bank,  51  Ala.  305.) 

Sec.  825.  NOTICE  GIVEN  BY  OTHERS 
THAN  THE  HOLDER.— A  party  who  receives  due 
notice  of  the  dishonor  of  a  bill,  as  an  indorser,  after  the 
receipt  of  such  notice,  has  the  same  time  in  which  to  give 
notice  to  antecedent  parties  whom  he  desires  to  hold 
liable,  as  the  original  holder  has  after  the  dishonor  of  the 
bill.  (Lawson  v.  State,  1  Ohio  St.  206.)  So  when  a  bill 
is  in  the  hands  of  an  agent,  he  will  have  the  same  time 
in  which  to  give  notice  to  his  principal,  as  he  would  if  he 


108  NEGOTIABLE    INSTRUMENTS. 

were  an  independeirl  indorser,  with  his  principal  liable 
to  him.  (Wright  v.  Shawcross,  2  B.  &  Aid.  501.)  If 
the  l>ill  is  presented  through  the  post-office  for  payment, 
the  drawee  or  acceptor  is  deemed  to  be  the  agent  of  the 
holder  for  the  purpose  of  giving  notice  of  dishonor,  and 
has  the  same  time  for  giving  notice  as  the  holder  would 
have.  (Prideanx  v.  diddle,  4  L.  R.  Q.  B.  401 ;  Ben  j/s 
Chalmers,  B.  N.  &  C,  Art.  196.) 

Sec.  820.  WHEN  NOTICE  OF  DISHONOR 
IS  UNNECESSARY.— "Notice  of  dishonor  is  dis- 
pensed with: 

"1.  When  the  drawer  or  indorser  sought  to  be 
charged  is,  as  between  the  parties  to  the  bill,  the  prin- 
cipal debtor,  and  has  no  reason  to  expect  that  it  will  be 
honored  on  presentment."*  As  where  a  person  draws  a 
bill  on  one  who  is  under  no  obligation  to  accept  or  pay 
it  and  has  not  agreed  that  he  will  do  so.  The  drawer 
is  not  entitled  to  notice  of  dishonor.  (Welch  v.  B.  &  C. 
Mfg.  Co.,  82  111.579.) 

"2.  As  regards  the  drawer,  when  drawrer  and  drawee 
are  the  same  person,  or  identical  in  interest."  For  ex- 
ample, where  a  bill  is  drawn  by  one  firm  on  another,  and 
the  two  have  a  common  partner. 

"3.  When  the  drawer  or  indorser  sought  to  be 
charged  is  the  person  to  whom  the  bill  is  presented  for 
payment." 

"4.    When  the  drawee  is  a  fictitious  person,  or  (per- 


*The  quotations  in  this  section  arc  from  Bcnj.'s   Chalmers, 
Art.  200. 


DUTIES    OF    THE    HOLDER.  109 

heaps)  a  person  not  having  capacity  to  contract,  and  the 
drawer  or  indorser  sought  to  be  charged  was  aware  of 
the  fact  at  the  time  he  drew  or  indorsed  the  bill." 

"5.  When  the  drawer  or  indorser  sought  to  be  charged 
has  received  an  assignment  of  all  the  property  of  the 
acceptor  as  security  against  his  liability."  And  by  some 
authorities  whenever  the  secondary  obligor  has  collateral 
security  sufficient  to  satisfy  the  debt,  whether  all  or  only 
a  part  of  the  property  of  the  acceptor,  since,  in  such  case, 
the  secondary  obligor  could  suffer  no  damage  from  want 
of  presentment  and  notice.  Tiedeman  asserts  the  bet- 
ter rule  to  be,  that  the  indorser  or  drawer  in  taking  the 
collateral  security  should  obligate  himself  to  see  the  pay- 
ment of  the  paper,  in  order  that  the  taking  shall  relieve 
the  holder  of  the  duty  of  giving  notice.  (Com.  Pap., 
Sec.  362.)* 

"6.  When,  after  the  exercise  of  reasonable  diligence, 
notice  of  dishonor  cannot  be  given  to  or  does  not  reach 
the  party  sought  to  be  discharged."    As  where  the  no- 


*Bank  v.  Griswold,  7  Wend.  165;  Spencer  v.  Harvey,  17 
Wend.  490;  Duvall  v.  Farmers'  Bank,  9  G.  and  J.  31,  hold  that 
an  assignment  of  all  the  property  is  necessary  to  relieve  the  duty 
of  giving  notice.  Watkins  v.  Crouch,  5  Leigh  522 ;  Bank  v. 
McGuire,  33  O.  St.  295;  Woodman  v.  Eastman,  10  N.  H.  359, 
hold  that  all  or  a  part  sufficient  to  cover  the  note  is  sufficient; 
while  Bond  v.  Farnham,  5  Mass.  170 ;  Haskell  v.  Boardman,  8 
Allen  39,  indicate  that  the  drawer  or  indorser  should  be  obli- 
gated to  pay  the  debt  on  taking  security.  Taylor  v.  French,  4 
E.  D.  Sm.  (N.  Y.)  458;  Wilson  v.  Senier,  14  Wis.  380,  deny 
that  security  by  part  of  acceptor's  property,  though  sufficient 
to  meet  the  bill  will  dispense  with  demand,  notice,  and  protest. 


110  NEGOTIABLE    INSTRUMENTS. 

tice  is  duly  posted  but  lost  in  the  mail,  or  where  the  no- 
tice is  duly  served  at  the  party's  place  of  business  or  resi- 
dence but  the  party  is  not  there  or  any  one  to  receive 
notice.  (Bank  of  Utica  v.  Bender,  21  Wend.  643; 
Maekay  v.  Judkins,  1  F.  &  F.  208.)  But  the  mere  fact 
that  the  drawer  or  indorser  has  reason  to  believe  that 
the  bill  will  be  dishonored  on  presentment,  will  not  dis- 
pense with  notice  of  dishonor.  Bankruptcy  or  death  will 
not  dispense  with  the  necessity  of  notice  being  attempted 
to  be  given  to  the  party  or  his  representatives.  ( Smalley 
v.  Wright,  40  N.  J.  L.  471.) 

"7.  By  Waiver  express  or  implied.  Notice  of  dis- 
honor may  be  waived  before  the  time  for  giving  notice 
has  arrived,  or  after  the  omission  to  give  notice."  A 
waiver  of  notice  in  favor  of  the  holder  enures  for  the 
benefit  of  parties  prior  to  such  holders  as  well  as  subse- 
quent holders.  But  waiver  of  notice  of  dishonor  by  an 
indorser  does  not  affect  prior  parties.  When  there  is 
an  acknowledgment  of  liability  after  failure  to  give  no- 
tice, it  must  be  made  with  full  knowledge  of  the  facts  to 
be  valid.  And  a  verbal  waiver  of  notice «may  be  re- 
voked if  the  time  for  giving  notice  has  not  expired. 
(Benj.'s  Chalmers,  B.  N.  &  C,  Art.  200.) 

Sec.  827.  EXCUSES  FOR  DELAY  IN  GIV- 
ING NOTICE  OF  DISHONOR.— In  general,  delay 
in  giving  notice  of  dishonor  will  be  excused  when  such 
delay  is  caused  by  circumstances  beyond  the  control  of 
the  party  whose  duty  it  is  to  give  notice,  and  not  caused 
by  his  negligence.  And  when  the  cause  of  the  delay  is 
removed,  notice  should  be  given  with  reasonable  dill- 


DUTIES    OF    THE    HOLDER.  Ill 

gence.  Thus  sickness,  death,  or  accident  to  the  holder 
about  the  time  the  note  or  bill  matures  will  excuse  delay 
for  a  reasonable  time.  (White  v.  Stoddard,  11  Gray 
258.)  So  where  paper  is  sent  to  an  agent  for  collection, 
or  transferred  on  or  near  the  day  of  maturity,  delay  will 
be  excused,  as  to  the  indorser  causing  the  delay.  (Tiede- 
man,  Com.  Pap.,  Sec.  361.)  Where  the  holder  does  not 
know  the  indorser's  address,  delay  caused  in  making  in- 
quiries will  be  excused.  (Fugitt  v.  Nixon,  44  Mo.  295.) 
Sec.  828.  CONFLICT  OF  LAWS  AS  RE- 
GARDS NOTICE.— Where  the  instrument  is  drawn 
in  one  country  and  payable  in  another,  and  there  is  a 
conflict  of  laws,  the  validity  of  a  notice  of  dishonor,  both 
as  to  form  and  time,  will  (probably)  be  determined  by 
the  law  of  the  place  where  the  notice  is  given.  (Home 
v.  Rouquette,  3  L.  R.,  Q.  B.  D.  514.) 

PAYMENT. 

Sec.  829.  DUTY  OF  HOLDER  TO  ACCEPT 
PAYMENT,  AND  DELIVER  BILL.— Upon  pay- 
ment from  the  drawee  or  acceptor  it  is  the  duty  of  the 
holder  to  deliver  up  the  bill  or  note,  excejDt,  perhaps, 
upon  proof  of  its  destruction  when  he  cannot  do  so.  The 
surrender  is  desired  as  it  is  presumptive  evidence  of  pay- 
ment, and  further  that  the  payor  may  know  that  the  bill 
is  not  in  circulation.  Some  cases  hold  that  the  payor 
may  demand  a  receipt  of  payment  to  be  written  on  the 
surrendered  paper,  but  this  is  doubtful  authority. 
(Chitty  on  Bills,  13th  Am.  ed.  477;  Otisfield  v.  May- 
berry,  63  Me.  197;  Best  v.  Crall,  23  Kans.  482.)     The 


112  NEGOTIABLE    INSTRUMENTS. 

payor  may  also  demand  the  right  to  examine  the  paper 
to  ascertain  the  genuineness  of  the  signatures,  but  the 
right  to  its  surrender  finally  is  concurrent  and  not  a  con- 
dition precedent  to  payment.  (Wheeler  v.  Guild,  20 
Pick.  515.) 

Payment  is  to  be  distinguished  from  a  sale  or  transfer 
of  a  bill  or  note,  as  it  extinguishes  the  liability  of  the 
party  on  behalf  of  whom  the  payment  is  made,  instead 
of  transferring  the  claim  under  it,  as  in  the  case  when 
the  parties  agree  that  it  shall  be  a  transfer  or  sale.  There 
must  be  a  present  bona  fide  intention  at  the  time  to  make 
the  transaction  a  sale  and  not  a  payment  discharging  the 
claim.     (Greening  v.  Patten,  51  Wis.  150.) 

Sec.  830.  WHO  MAY  MAKE,  AND  RECEIVE 
PAYMENT.— All  parties  to  the  bill,  primarily 
or  secondarily  liable  to  it,  may  make  or  offer  pay- 
ment. A  mere  stranger  to  the  paper  cannot  make  pay- 
ment without  the  consent  of  the  holder  unless  he  repre- 
sents a  party  liable  thereon,  or  makes  payment  supra 
protest.  A  personal  representative  of  a  party  is  not  a 
stranger.     (Burton  v.  Slaughter,  26  Gratt.  919.) 

The  payment  can  only  be  properly  made  to  the  holder 
or  his  authorized  agent  or  representative.  This  means 
the  de  facto  holder,  and  a  bill  payable  to  bearer  may  be 
paid  to  the  holder  though  he  has  stolen  it.  If  payable 
to  order  it  must  then  be  paid  to  the  person  named  in  the 
order  or  his  agent,  and  any  other  payment  will  not  dis- 
charge the  party  paying.     (2  Daniel,  Sec.  1231.) 

Sec.  831.  EFFECT  OF  PAYMENT  PROP- 
ERLY MADE. — A  proper  payment  can  only  be  made 


DUTIES    OF    THE    HOLDER.  US 

with  money  that  is  legal  tender,  unless  by  agreement 
with  the  holder.  And  money  that  is  legal  tender  must 
be  taken  in  payment  though  depreciated  as  regards  an- 
other specie  of  legal  tender.  (Killough  v.  Alford,  32 
Tex.  457.)  The  payment  must,  however,  correspond 
to  the  terms  of  the  bill,  and  if  a  particular  kind  of  legal 
tender  is  specified,  as  gold,  the  holder  need  accept  none 
other.*  The  holder  may  accept  in  payment  of  the  bill 
anything  he  desires,  but  an  agent  of  the  holder  in  the 
absence  of  authority  can  accept  only  money.  (DeMets 
v.  Dogon,  53  N.  Y.  635 ;  Chapman  v.  Cowles,  41  Ala. 
103.) 

The  effect  of  payment  is  to  extinguish  the  liability  of 
the  party  paying  in  all  cases,  and  in  case  he  is  the  pri- 
mary obligor  all  the  parties  to  the  bill  are  discharged, 
since  they  merely  guarantee  payment  by  such  primary 
party ;  but  where  payment  is  made  by  a  party  who  is  not 
the  primary  obligor,  or  an  accommodated  party,  his  pay- 
ment only  cancels  his  own  liability,  and  those  who  are 
obligated  after  him.  All  prior  parties,  primarily  or  sec- 
ondarily liable  on  the  bill,  are  liable  to  such  a  payor,  and 
the  payor  may  cancel  indorsements  subsequent  to  his 
own  and  re-issue  the  paper,  and  it  will  be  valid  as  against 
the  prior  parties.  In  such  case,  the  re-issue  or  indorse- 
ment must,  if  made  after  maturity,  contain  words  of 
negotiability,  as  "to  order,"  or  "to  bearer,"  as  the  trans- 


*Bronson  v.  Rhodes,  7  Wall.  245;  Phillips  v.  Dugan,  21  O. 
St.  466 ;  McGoon  v.  Shirk,  54  111.  408 ;  Smith  v.  Wood,  37  Tex. 
457.  Contra,  Wood  v.  Bullens,  6  Allen  518 ;  Kilough  v.  Alford, 
supra. 


114  NEGOTIABLE    INSTRUMENTS. 

fer  is  a  new  and  independent  contract.  (W.  Boston 
Savings  Inst.  v.  Thompson,  124  Mass.  506;  St.  John  v. 
Roberts,  31  N.  Y.  441.) 

Sec.  832.  PAYMENT,  HOW  APPROPRIATED 
WHEN  THERE  ARE  TWO  OR  MORE  BILLS. 
— If  the  debtor  is  obligated  to  the  holder  on  two  or  more 
instruments,  and  a  payment  is  made,  how  shall  it  be  ap- 
plied? The  following  rules  are  deduced  by  Professor 
Tiedeman  in  his  valuable  work: 

1.  When  the  payment  is  voluntary,  the  debtor  may 
make  the  appropriation  as  he  pleases,  and  has  until  the 
bringing  of  suit  to  make  the  appropriation  as  regards 
the  creditor,  and  a  reasonable  time  as  regards  third  per- 
sons. 

2.  If  the  debtor  makes  no  specific  appropriation  the 
creditor  may  apply  it  as  he  pleases.  Perhaps  he  may 
not  apply  the  payment  to  a  debt  not  yet  due  if  one  is 
due,  or  to  a  debt  whose  validity  has  been  questioned  by 
the  debtor.  He  may  apply  it  to  a  debt  barred  by  the 
statute  of  limitations,  but  such  application  will  not  take 
the  debt  out  of  the  statute  as  to  the  balance. 

3.  The  law  will  make  the  appropriation,  in  case  neither 
creditor  or  debtor  does  so,  to  best  conform  to  the  prin- 
ciples of  equity,  and  the  probable  intention  of  the  par- 
ties. Thus  a  debt  of  long  standing  will  be  paid  before  a 
later  one,  and  interest  will  be  paid  before  the  principal. 
(Com.  Pap.,  Sec.  377.) 

Sec.  833.  PAYMENT  BY  BILL,  WHEN  CON- 
SIDERED ABSOLUTE  OR  CONDITIONAL.— 
When  payment  of  a  bill  or  note  is  made  by  giving  an- 


DUTIES    OF    THE    HOLDER.  115 

other  note  or  bill, — other  than  notes  treated  as  legal  ten- 
der,— as  a  general  rule,  such  payment  will  not  be  con- 
sidered absolute  until  the  paper  given  in  payment  has 
been  itself  paid,  except  where  the  parties  expressly  or 
impliedly  agree  that  the  claim  shall  be  discharged  by 
such  payment.  (Tiedeman,  Com.  Pap.,  Sec.  379.)  A 
distinction  is  made  by  some  authorities  when  the  payor 
gives  his  own  note  in  payment  and  when  he  gives  the 
note  or  bill  of  another.  In  the  first  instance  it  is  uni- 
formly treated  as  a  conditional  payment.  (Bank  of  U. 
S.  v.  Daniel,  12  Pet.  32;  McLaren  v.  Hall,  26  la.  298.) 
When  a  stranger's  note  is  given  in  payment  for  a  prece- 
dent debt  it  is  also  generally  treated  as  a  conditional 
payment,  but  if  given  in  satisfaction  of  a  contemporane- 
ous debt  it  is  held  to  be  an  absolute  payment  if  so  trans- 
ferred as  to  end  the  transferor's  liability  thereon,  that 
is,  without  indorsement.  ( Crane  v.  McDonald,  45  Barb. 
355;  Boyd  v.  Hitchcock,  20  Johns.  76.) 

A  new  bill  or  note  given  in  renewal  of  an  old  one  re- 
tained by  the  payee,  is  also  held  to  constitute  but  a  sus- 
pension of  the  old  one  until  the  new  one  is  paid.  If  the 
new  note  fails  for  any  reason,  the  old  one  is  revived  and 
suit  may  be  brought  on  it.  (Bitter  v.  Singmaster,  73 
Pa.  St.  400.)  To  rebut  this  legal  presumption  that  such 
payments  are  conditional,  there  must  be  an  express 
agreement  to  the  contrary,  or  such  circumstances  as  will 
by  implication  show  that  the  parties  considered  the  pay- 
ment absolute.  Thus  while  a  receipt  in  full  signed  by 
the  recipient  of  the  paper  is  not  considered  sufficient  to 
rebut  the  presumption  of  conditional  payment,  if  other 


116  NEGOTIABLE    INSTRUMENTS. 

corroborating  circumstances  appear,  as  where  the  words 
were,  "received  and  accepted  in  full  satisfaction,"  and 
security  by  the  indorsement  of  a  third  person  was  given, 
it  was  held  to  be  an  absolute  payment.  ( Morris  v.  Har- 
vey, 75  Va.  720.)  Some  cases  hold  where  the  holder  had 
the  option  of  a  cash  payment  or  the  bill  it  will  be  treated 
as  an  absolute  payment,  but  the  surrender  of  a  security 
is  not  sufficient  to  alter  the  presumption.  (Tiedeman, 
Com.  Pap.,  Sec.  380.) 

The  conditional  payment  operates  to  suspend  the 
right  of  action  on  the  original  paper  until  the  paper 
taken  in  payment  falls  due,  then  the  holder  can  sue,  at 
his  election,  on  either  of  the  obligations.  But  if  he  sues 
on  the  original  debt  or  note,  he  must  present  and  surren- 
der the  bill  or  note  taken  in  payment,  or  account  for  it 
to  the  satisfaction  of  the  party  giving  it.  It  is  the  duty 
of  a  holder  of  a  bill  taken  in  conditional  payment  to  pre- 
sent it  for  acceptance  or  payment  and  do  all  things  nec- 
essary to  charge  the  parties  liable  on  it,  and  a  failure  so 
to  do,  is  held  by  some  authorities  to  discharge  the  debtor 
both  on  his  indorsement  and  on  the  original  debt. 
(Mauney  v.  Coit,  80  N.  C.  300.)  While  others  hold 
such  failure  will  only  discharge  the  debtor  in  case  he  has 
been  damaged  by  the  negligence  of  the  creditor.  (Kep- 
hart  v.  Butcher,  17  la.  240;  Tiedeman,  Com.  Pap.,  Sec. 
382.) 


CHAPTER  VII. 

LIABILITIES  OF  PARTIES  AND  SPECIAL  FORMS  OF  DIS- 
CHARGES. 

Sec.  834.  LIABILITY  AS  BETWEEN; 
DRAWEE  AND  DRAWER  OR  HOLDER.— We 

have  seen  (ante.  Chapter  V)  that  the  drawee  does  not 
become  an  actual  party  to  the  bill  until  he  has  accepted, 
and  that  he  is  not  bound  to  accept,  unless,  upon  a  valu- 
able consideration,  he  has  expressly  or  impliedly  agreed 
to  do  so.  The  drawee  for  the  breach  of  an  agreement  to 
accept  with  the  drawer  would  be  responsible  for  the 
damages  resulting,  and  these  include  damages  to  draw- 
er's credit.     (Roberts  v.  Corbin,  26  la.  315.) 

So  as  regards  the  holder  the  drawee  before  acceptance 
incurs  no  liability  to  the  holder,  and  no  privity  of  con- 
tract exists  between  them.  So  the  holder  of  a  check  dis- 
honored by  the  bank  on  which  it  was  drawn  would  have 
no  redress  as  against  the  bank  though  the  drawer  had 
money  in  bank  to  pay  it.  (Carr  v.  Natl.  Bank,  107 
Mass.  45 ;  Griffin  v.  Kemp,  46  Ind.  175 ;  Bank  v.  Bank, 
80  111.  212.)  Privity  between  drawee  and  a  holder  may 
be  created  by  an  agreement  outside  of  the  bill,  and  the 
liability  of  the  drawee  might  become  that  of  an  acceptor 
under  such  an  agreement.  (Re  Agra  Bank,  2  L.  R. 
Ch.,  391.) 

Sec.  835.  LIABILITY  OF  ACCEPTOR  TO 
HOLDER. — By  acceptance  of  a  bill  the  drawee  be- 

117 


118  NEGOTIABLE    INSTRUMENTS. 

comes  the  principal  debtor,  and  in  effect  agrees  that  he 
will  pay  it  at  maturity  according  to  the  terms  of  his  ac- 
ceptance. (Philpot  v.  Bryant,  4  Bing.  720;  Howe  v. 
Young,  2  Bligh.  H.  L.  467.)  To  a  bona  fide  holder  the 
acceptance  of  a  bill  of  exchange  precludes  the  acceptor 
from  denying  the  existence  of  Hie  drawer;  the  genuine- 
ness of  his  signature,  or  his  capacity  and  authority  to 
draw  the  bill.  (N.  Park  Bank  v.  North  Bank,  40  N.  Y. 
77.)  But  this  rule  is  further  restricted  by  the  authorities 
so  that  the  holder  in  addition  to  being  a  holder  in  good 
faith,  must  not  have  contributed  through  neglect  or  oth- 
erwise in  misleading  the  acceptor  into  believing  the  sig- 
nature of  the  drawer  to  be  genuine.* 

By  accepting  a  bill  payable  to  drawer's  order,  the  ac- 
ceptor warrants  that  the  drawer  is  at  the  time  not  inca- 
pacitated from  indorsing,  but  does  not  warrant  the  gen- 
uineness of  the  signature  or  the  authority  to  indorse.! 

Acceptance  of  a  bill  payable  to  a  third  person  pre- 
cludes the  acceptor  from  denying  the  existence  of  the 
payee,  and  his  capacity  to  indorse  at  the  time,  but  not  the 
genuineness  of  the  indorsement.  (Benj.'s  Chalmers,  B. 
N.  &  C,  Art.  212.)  Where  there  is  a  forged  indorse- 
ment on  the  bill  when  issued  by  the  drawer,  it  could  not 

•White  v.  Conk  Bank,  64  N.  Y.  316;  Peoria  R.  R.  Co.  v. 
Ncill,  16  111.  269.  And  by  McKleroy  v.  Bank,  14  La.  An.  462, 
it  is  held  that  the  genuineness  of  the  signature  is  only  warranted 
by  the  acceptor  to  a  holder  who  takes  the  bill  after  the  acceptance. 

fBraithwaite  v.  Gardiner,  8  Q.  B.  473;  Canal  Bank  v.  Bank, 
1  Hill  287;  Garland  v.  Jacomb,  8  L.  R.  Ex.  216.  In  the  latter 
case  a  bill  drawn  and  indorsed  by  a  partner  in  non-trading  firm 
was  not  warranted  by  the  acceptance. 


LIABILITIES    OF    PARTIES.  119 

be  set  up  as  against  a  bona  fide  holder,  as  the  drawer  is 
resj^onsible  for  the  utterance  of  the  forgery,  and  can  be 
charged  with  the  bill  by  the  acceptor.  (Horstman  v. 
Henshaw,  11  How.  177.) 

By  refusing  to  pay  the  accepted  bill  at  maturity  the 
acceptor  becomes  liable  for  the  amount  of  the  bill  with 
interest  from  the  date  of  maturity  when  the  bill  is  pay- 
able on  a  day  certain,  or  with  interest  from  the  date  of 
presentment  for  payment  when  payable  on  demand. 
(Ayer  v.  Tilden,  15  Mass.  183;  Patrick  v.  Clay,  4  Bibb. 
Ky.  246.)  And  as  special  damages  the  acceptor  is  liable 
for  the  expenses  of  protest,  and  cost  of  re-exchange  to 
the  party  taking  up  the  bill.  (Bowen  v.  Stoddard,  10 
Met.  375.) 

Sec.  836.  LIABILITY  OF  DRAWER  OR  IN- 
DORSER  TO  THE  HOLDER.— "The  drawer  of  a 
bill  of  exchange  engages  that  on  due  presentment  it  shall 
be  accepted  and  paid  according  to  its  tenor,  and  that  if 
it  be  not  so  accepted  and  paid  he  will  indemnify  the 
holder,  provided  due  notice  of  dishonor  be  given." 
(Benj.'s  Chalmers,  B.  N.  &  C,  Art.  215.)  And  by 
drawing  the  bill  the  drawer  warrants  and  admits  to  a 
bona  fide  holder  the  existence  of  the  payee  and  his  then 
capacity  to  indorse.     (Id.,  Art.  216.) 

All  persons  who  sign  a  negotiable  instrument  except 
as  a  drawer  or  acceptor,  or  by  way  of  receipt,  incur 
thereby  the  liability  of  indorsers.  (Bigelow  v.  Colton, 
13  Gray  309;  Ex  parte  Yates,  3  D.  &  J.  191.) * 

*A  person  indorsing  a  bill  or  note  in  blank  of  which  he  is 
not  the  holder  or  payee,  is  called  a  quasi-indorser,  and  by  some 


120  NEGOTIABLE    INSTRUMENTS. 

Indorsers,  as  regards  their  liability  are  deemed  new 
drawers.  Each  indorser,  by  his  indorsement,  contracts 
that  the  bill  will  be  paid  according  to  its  tenor  on  pre- 
sentment, and  in  case  it  is  not  accepted  and  paid  he  will 
indemnify  the  holder  upon  receiving  due  notice  of  dis- 
honor. (1st  Natl.  Bank  v.  Marine  Bank,  20  Minn.  63.) 
Each  indorser  upon  indorsement  warrants  and  admits 
to  innocent  holders  the  genuineness  and  regularity  of 
the  drawer's  signature,  and  of  all  previous  indorsements; 
that  the  bill  is  a  valid  and  subsisting  one,  and  that  his 
title  to  it  is  lawful.  (Williams  v.  Inst.  57  Miss.  633; 
Watson  v.  Chesire,  18  la.  202.) 

As  regards  an  innocent  holder  the  indorser  could  not 
set  up  as  a  defense  to  his  liability  that  the  drawer's  or 
acceptor's  signature  had  been  forged,  or  that  the  bill  had 
been  materially  altered  after  issue  and  before  indorse- 
ment, since  his  indorsement  operates  as  a  new  and  in- 
dependent contract.  (Andrews  v.  Simms,  33  Ark.  771; 
Dalrymple  v.  Hillenbrand,  62  N.  Y.  5.) 

The  indorser  upon  the  dishonor  of  the  bill  becomes 
liable  to  the  holder  for  the  amount  of  the  bill  with  in- 

authorities  is  held  to  incur  the  liability  of  an  indorser,  subject 
to  the  true  intention  of  the  parties,  which,  when  ascertained 
controls  his  liability.  And  by  other  authorities  he  is  held  liable 
as  a  joint  promisor  or  co-maker  in  case  he  indorsed  the  note 
before  issue,  and  as  a  guarantor  if  the  indorsement  was  made 
after  its  issue,  subject,  of  course,  to  the  true  intention  of  the 
parties.  For  the  first  rule,  see:  Browning  v.  Mcrritt,  61  Ind. 
425;  Eilbert  v.  Finkbeiner,  68  Pa.  St.  243.  And  for  the  second 
rule  see:  Union  Bank  v.  Willis,  8  Met.  504;  Good  v.  Martin, 
95  U.  S.  90;  Herbage  v.  McEntee,  40  Mich.  337;  Chafee  v. 
R.  R.,  64  Mo.  193. 


LIABILITIES    OF    PARTIES.  121 

terest  from  the  date  of  dishonor,  in  the  case  of  an  inland 
bill,  but  interest  in  the  way  of  damages  may  or  may  not 
be  given  as  the  facts  of  the  particular  case  would  war- 
rant. (Keene  v.  Keene,  3  C.  B.,  N.  S.,  144.)  And 
upon  a  foreign  bill  of  exchange,  the  indorser  becomes 
liable  for  the  face  of  the  bill  with  interest  from  the  date 
of  dishonor,  plus  protest  fees,  re-exchange,  interest  and 
expenses. 

Sec.  837.  SAME  SUBJECT— EXCHANGE 
AND  RE-EXCHANGE  DISCUSSED.— Ex- 
change means  the  cost  of  transmitting  money  from  one 
place  to  another.  But  as  in  commercial  transactions  the 
bills  drawn  upon  one  place  are  offset  by  those  the  place 
of  payment  may  have  upon  the  town  or  city  drawing, 
the  rate  or  cost  of  exchange  varies  as  between  two  places 
as  the  inequality  between  bills  drawn  and  bills  payable 
increases.  In  the  place  of  the  greater  liabilities  ex- 
change will  be  higher  or  at  a  premium,  and  in  the  other 
place  at  a  discount.  In  the  case  of  a  bill  drawn  payable 
in  a  foreign  country  the  drawer,  and  likewise  an  in- 
dorser, agrees  that  the  holder  shall  receive  the  full  face 
value  of  the  bill  in  the  place  of  payment,  it  has  become 
the  rule  of  the  law  merchant  that  the  holder,  upon  dis- 
honor of  the  bill,  from  the  place  of  payment  may  draw  a 
new  bill  on  the  indorser  or  original  drawer  for  such  a 
sum  as  will  be  worth  in  the  indorser's  or  drawer's  domi- 
cile, the  face  value  of  the  original  bill  in  its  place  of  pay- 
ment. This  second  bill  is  called  a  bill  of  re-exchange, 
and  the  cost  of  such  exchange  is  assessable  by  way  of 
damages  against  the  drawer  or  indorser  of  the  dishon- 


122  NEGOTIABLE    INSTRUMENTS. 

ored  bill.     (Bank  of  U.  S.  v.  United  States,  2  How. 
737.)* 

While  such  a  bill  of  re-exchange  is  not  actually  drawn 
it  serves  to  ascertain  the  amount  of  damages  to  be  col- 
lected by  the  holder.  And  now  by  statute  in  most  of  the 
States  and  countries  this  damage  by  way  of  cost  of  ex- 
change is  fixed  and  a  definite  amount  to  be  recovered  as 
liquidated  damages.  (Tiedeman,  Com.  Pap.,  Sec.  406.) 
In  case  of  a  conflict  of  laws,  the  liability  of  the  drawer 
or  indorser  is  fixed  by  the  law  of  the  place  where  the 
bill  is  drawn  or  indorsed,  and  not  by  the  place  of  pay- 
ment. (Crawford  v.  Bank,  6  Ala.  12;  Gibbs  v.  Fre- 
mont, 9  Exch.  25.) 

Promissory  notes  are  not  within  the  commercial  rule 
as  to  re-exchange  unless  written  "with  exchange,"  or 
until  indorsed,  when  it  becomes  a  sort  of  bill  of  exchange 
upon  the  maker,  and  the  holder  may  recover  principal, 
interest,  costs,  and  exchange.  (Bank  of  Mo.  v.  Wright, 
10  Mo.  719;  Cash  v.  Kennion,  10  Ves.  314;  contra, 
Adams  v.  Cordis,  8  Pick.  260.) 

Sec.  838.  SAME  SUBJECT— INTEREST.— 
Many  statutes  fix  a  legal  rate  of  interest  and  allow  a 

*"Re-exchange  means  the  loss  resulting  from  the  dishonor 
of  a  bill  of  exchange  in  a  country  different  from  that  in  which 
it  was  drawn  or  indorsed.  The  re-exchancre  is  ascertained  by 
proof  of  the  sum  for  which  a  sight  bill  (drawn  at  the  time  and 
place  of  dishonor  at  the  then  rate  of  exchange  on  the  place 
where  the  drawer  or  indorser  sought  to  be  charged  resides  must 
be  drawn  in  order  to  realize  at  the  place  of  dishonor  the  amount 
of  the  dishonored  bill  and  the  expenses  consequent  on  its  dis- 
honor."    (Bcnj.'s  Chalmers,  B.  N.  and  Checks,  Art.  221.) 


LIABILITIES    OF    PARTIES.  123 

greater  rate  by  express  contract.  Where  this  is  the  case 
and  the  higher  rate  is  specified  in  the  bill,  it  is  in  dispute 
whether  this  rate  of  interest  can  be  recovered  after  ma- 
turity. The  weight  of  authority  seems  to  be  that  the 
specified  rate  can  be  recovered  after  maturity,  though 
this  is  denied  in  many  cases.*  Where  the  United  States 
courts  have  to  pass  upon  this  question  of  interest,  the 
legal  interest  alone  can  be  recovered  except  where  the 
case  comes  up  from  one  of  the  States  where  the  other 
rule  prevails.     (LI olden  v.  Trust  Co.,  100  U.  S.  72.) 

Sec.  839.  LIABILITY  OF  PERSON  WHO 
TRANSFERS  BY  DELIVERY  ONLY.— A  bill 
made  payable  to  bearer  is  transferable  by  delivery  only, 
and  a  party  thus  transferring,  called  a  transferor  by  de- 
livery, incurs  no  liability  on  the  instrument,  and  unless 
given  as  collateral  security  or  for  an  antecedent  debt  he 
is  not  liable  for  the  consideration  for  which  the  bill  was 
transferred  in  case  of  its  dishonor.  (Munroe  v.  Hoff, 
5  Den.  360;  Van  Wart  v.  Wolley,  3  B.  &  C.  446.)  A 
transfer  or  by  delivery,  however,  warrants  to  his  im- 
mediate transferee  that  the  bill  is  what  it  purports  to  be 
(Challis  v.  McCrum,  22  Kan.  157) ,  and  that  at  the  time 
of  transfer  he  is  without  notice  of  any  fact  which  de- 
stroys its  validity.    (Delaware  Bank  v.  Jervis,  20  N.  Y. 


*Hand  v.  Armstrong,  18  la.  324;  Pruyne  v.  Milwaukee,  18 
Wis.  568;  Hopkins  v.  Crittenden,  10  Tex.  189;  Seymour  v. 
Continental  Life  Ins.  Co.,  44  Conn.  300,  hold  that  the  specified 
rate  can  be  recovered,  while  the  following  cases  hold  the  con- 
trary: Duran  v.  Ayer,  67  Me.  145;  Newton  v.  Kennerly,  31 
Ark.  626 ;  Perry  v.  Taylor,  1  Utah  63. 


124  NEGOTIABLE    INSTRUMENTS. 

228.)  The  transferee  upon  discovering  a  defect  in  the 
bill  known  to  the  transferor,  must  give  notice  of  his  in- 
tention to  repudiate  the  transfer  with  reasonable  dili- 
gence. (Benj.'s  Chalmers,  B.  N.  &  C,  Art.  22G.)  Also, 
by  the  weight  of  authority,  the  transferor  warrants  the 
solvency  of  the  maker  at  the  time  of  the  transfer.  (Rob- 
erts v.  Fisher,  43  X.  Y.  159;  Townsends  v.  Bank,  7  Wis. 
185;  contra,  Bicknall  v.  Waterman,  5  R.  I.  -13.) 

Sec.  840.  LIABILITY  OF  PERSON  ACCOM- 
MODATED TO  ACCOMMODATION  PARTY. 
— An  accommodation  party  is  defined  in  Benj.'s  Chal- 
mers, as  "a  person  who  has  signed  a  bill  as  drawer,  in- 
dorser,  or  acceptor,  without  receiving  value,  and  for  the 
purpose  of  lending  his  name  to  some  other  person  as  a 
means  of  credit."  (Art.  90.)  To  such  a  party  to  a  bill 
the  person  accommodated,  or  the  principal  creditor  on 
the  bill,  engages  that  he  will  see  to  the  payment  of  the 
bill  at  maturity,  and  in  case  of  failure  so  to  do,  that  he 
will  indemnify  the  accommodation  party.  If  the  accom- 
modation party  is  compelled  to  pay  the  bill,  he  has  the 
rights  of  the  ordinary  surety,  and  entitled  to  the  benefit 
of  any  security  held  by  the  creditor.  If  there  are  two  or 
more  accommodation  parties,  they  are  considered  as  co- 
sureties as  between  themselves.  (Baker  v.  Martin,  3 
Barb.  634;  Raynolds  v.  Wheeler,  30  L.  J.,  C.  P.,  350.) 

Sec.  841.  WHAT  WILL  OPERATE  TO  DIS- 
CHARGE THE  LIABILITY  OF  PARTIES  TO 
A  BILL  OR  NOTE.— By  discharge  of  a  bill  is  meant 
the  extinguishment  of  rights  of  action  on  it.  It  then 
ceases  to  be  negotiable,  and  its  transfer  can  only  operate 


LIABILITIES    OF    PARTIES,  125 

as  a  new  contract  between  the  transferor  and  transferee. 
(Eaton  v.  McKown,  34  Me.  510.)  The  law  governing 
the  question  of  discharge  is  that  of  the  place  where  the 
party  sought  to  be  charged  became  a  party  to  the  in- 
strument. Thus  where  a  bill  was  drawn  and  issued  in 
the  United  States  on  a  party  in  England  and  dishonored, 
it  was  held  that  the  drawer  could  not  be  sued  in  Eng- 
land because  he  had  been  discharged  in  America  as  a 
bankrupt.     (Potter  v.  Brown,  5  East  124.) 

A  bill  is  discharged  by  payment  in  due  course  (ante, 
Sees.  829-832)  ;  by  part  payment  in  due  course  the  bill 
will  be  discharged  pro  tanto  (Com.  Bank  v.  Cunning- 
ham, 20  Pick.  275)  ;  by  the  acceptor  becoming  the  holder 
after  maturity  in  his  own  right  ( Hall  v.  Kimball,  77  111. 
161 ;  Mitchell  v.  Rice,  6  J.  J.  Marsh  625)  ;  by  the  holder 
renouncing  absolutely  and  unconditionally  after  matur- 
ity his  rights  against  the  acceptor  (Larkin  v.  Harden- 
brook,  90  N.  Y.  333).  So  where  the  holder  intention- 
ally strikes  out  or  cancels  a  signature  of  a  party,  such 
party  is  thereby  discharged.  (Brett  v.  Marston,  45  Me. 
401.) 

Sec.  842.  SAME  SUBJECT— WHEN  SURETY 
DISCHARGED.— The  holder  of  a  bill  having  notice 
that  the  relationship  of  principal  and  surety  exists  be- 
tween prior  parties  to  the  instrument,  will  discharge 
such  sureties  by  giving  time  to  the  principal  unless  he 
expressly  reserves  his  rights  against  the  sureties.* 

*Benj.'s  Chalmers,  B.  N.  and  Checks,  Art.  245.  "Prima  facie 
the  acceptor  of  a  bill  is  the  principal  debtor,  and  the  drawer 
and  indorsers  are  as  regards  him,  sureties,  and  the  drawer  of 


126  NEGOTIABLE    INSTRUMENTS. 

Sec.  843.  SAME  SUBJECT— FORGERY  AND 
ALTERATIONS  AS  A  DISCHARGE.— By  for- 
gery is  meant  the  counterfeit  making  or  fraudulent  al- 
teration of  any  writing,  and  may  consist  in  the  signing 
of  another's  name,  or  the  alteration  of  an  instrument  in 
the  name,  amount,  description  of  the  person,  and  the 
like,  with  intent  thereby  to  defraud.  The  intent  to  de- 
fraud distinguishes  forgery  from  innocent  alterations 
and  spoliation.  A  forgery  or  fraudulent  alteration  will 
avoid  the  instrument  and  also  extinguish  the  debt  which 
represents  the  consideration  of  the  instrument.  (Tiede- 
man,  Com.  Pap.,  Sec.  392.)  An  innocent  alteration, 
when  material,  is  also  held  by  some  authorities  to  avoid 
the  instrument  while  not  canceling  the  debt,  others  hold- 
ing that  so  long  as  the  alteration  has  caused  no  injury 
a  court  of  equity  may  restore  it  to  its  original  condition 
so  that  a  suit  may  be  brought  on  it.  (Booth  v.  Powers, 
56  N.  Y.  31;  Kountz  v.  Kennedy,  63  Pa.  St.  187;  con- 
tra, Bigelow  v.  Stephens,  35  Vt.  525.) 

When  the  change  in  the  bill  or  note  is  made  by  a 
stranger  it  is  called  a  spoliation  instead  of  an  alteration. 
Such  a  change  of  an  instrument  has  no  effect  upon  it,  if 
the  original  meaning  can  be  ascertained.     (Buckler  v. 

a  bill  is  the  principal  as  regards  the  indorscrs  and  the  first 
indorser  is  the  principal  as  regards  the  second  and  subsequent 
indorscrs,  and  so  on  in  order;  but  evidence  for  the  present  pur- 
pose is  admissible  to  show  the  real  relationship  of  the  parties, 
and  it  is  immaterial  that  the  holder  was  ignorant  of  the  real 
relationship  when  he  took  the  bill,  provided1  he  had  notice  thereof 
at  the  time  of  his  dealings  with  the  principal."  Id.  (And  see 
subsequent  part  of  tins  book  on  Guarantors  and  Sureties.) 


LIABILITIES    OF    PARTIES.  127 

Huff,  53  Ind.  474;  Laugenberger  v.  Kroeger,  48  Cal. 
147.) 

A  material  alteration  is  defined  to  be  any  change  in 
the  instrument  which  affects  or  changes  the  liability  of 
the  parties  in  any  way.  The  alteration  avoids  the  paper 
regardless  whether  it  is  favorable  or  unfavorable  to  the 
part j7"  making  the  alteration.  (Franklin  Ins.  Co.  v. 
Courtney,  60  Ind.  134.)  The  following  have  been  held 
to  be  material  alterations:  Any  change  in  the  date  of 
the  instrument,  but  not  in  the  date  of  indorsement 
(Wood  v.  Steele,  6  Wall.  80;  Griffith  v.  Cox,  1  Tenn. 
210)  ;  any  alteration  in  the  amount  of  principal  or  in- 
terest (Harsh  v.  Klepper,  28  O.  St.  200;  Draper  v. 
Wood,  112  Mass.  315) ;  any  change  in  the  character  of 
the  payment,  whether  in  the  denomination  or  the  medium 
of  payment  ( Schwalm  v.  Mclntyre,  17  Wis.  232 ;  Dar- 
win v.  Rippey,  63  N.  C.  318)  ;  any  alteration  in  the 
personality,  number  and  relations  of  the  parties  ( Lamb 
v.  Paine,  46  Iowa  551)  ;  any  change  in  the  liability  of 
the  parties  (Blake  v.  Colman,  22  Wis.  415)  ;  or  any 
change  in  the  place  of  payment  (Tiedeman,  Com.  Pap., 
Sec.  394;  Benj.'s  Chalmers,  B.  N.  &  C,  Art.  247) . 

The  effect  of  a  material  alteration  by  the  holder  of  a 
bill  is  to  discharge  all  parties  from  liability  on  the  bill, 
unless  they  consented  to  such  alteration.  (Willis  v.  Wil- 
son, 3  Ore.  308;  Bank  v.  Lockwood,  13  W.  Va.  392.) 

Immaterial  alterations  which  are  those  which  do  not 
change  the  legal  effect  of  the  instrument,  as  adding 
words  implied  by  law,  making  marginal  figures  cor- 
respond to  the  written  statement  in  the  body  of  the  in- 


128  NEGOTIABLE    INSTRUMENTS. 

strumcnt,  the  adding  of  immaterial  memoranda,  and  the 
like.  (Smith  v.  Smith,  1  R.  I.  398;  Bachellor  v.  Priest, 
12  Pick.  -300.)  So  the  correcting  of  a  mistake  to  con- 
form to  the  intention  of  the  parties  is  an  immaterial 
alteration.     (Bank  v.  Bank,  13  X.  Y.  300.) 

The  holder  of  a  hill  altered  materially  cannot  recover 
on  the  original  consideration,  unless  the  alteration  was 
made  before  he  received  it  and  he  had  no  notice  of  the 
fact;  or  unless  he  was  innocent  of  fraud  in  making  the 
alteration,  and  the  party  sued  would  not  have  had  any 
remedy  over  or  recourse  to  others,  if  it  had  not  been 
altered.     (Benj.'s  Chalmers,  B.  N.  &  C,  Art.  240.) 

Bona  fide  holders  are  only  protected  against  forgery 
or  material  alterations  discharging  the  party  liable,  when 
some  carelessness  or  negligence  on  the  part  of  the  per- 
son whose  liability  has  been  changed  by  the  alteration, 
has  contributed  to  the  negotiation  of  the  paper  without 
suspicion  of  the  fraud,  as  where  blank  spaces  have  been 
left,  or  written  partly  in  pencil  so  as  to  be  easily  erased. 
(Zimmerman  v.  Rote,  75  Pa.  St.  188;  Harvey  v.  Smith, 
55  111.  224.)  So  a  memorandum  which  can  be  detached 
without  affecting  the  paper  will,  when  detached  in  fraud, 
not  be  allowed  to  avoid  the  paper  in  the  hands  of  a  bona 
fide  holder.     (Noll  v.  Smith,  64  Ind.  511.) 

It  must  not  be  forgotten  in  this  connection,  that  the 
drawee,  by  accepting  a  bill,  warrants  the  genuineness 
of  the  drawer's  signature,  and  the  indorsers  likewise 
guarantee  the  genuineness  of  all  parties  to  the  bill  at 
the  time  of  the  indorsement.  As  against  such  parties 
the  alteration  or  forgery  of  a  signature  prior  to  their 


LIABILITIES    OF    PARTIES.  129 

signature  will  not  avoid  the  instrument.      (See  ante, 
Sees.  834-837.) 

Sec.  844.  TIME  WITHIN  WHICH  SUIT 
MAY  BE  BROUGHT  ON  A  BILL.— At  the  com- 
mon law  the  limitation  within  which  an  action  may  be 
brought  on  a  bill  or  note  is  six  years,  and  after  the 
expiration  of  this  time  the  holder  who  has  had  a  right 
of  action  for  this  period  against  any  party  cannot  sue 
such  party.  (Woodruff  v.  Moore,  8  Barb.  171.)  The 
period  or  limitation  varies  in  the  different  States,  and 
in  some  the  common  law  term  has  been  lengthened,  in 
Ohio  it  is  fifteen  years.     (Rev.  Stat.  Ohio,  Sec.  4980.) 

The  time  begins  to  run  as  regards  the  acceptor  from 
the  maturity  of  the  bill,  except  where  presentment  for 
payment  is  necessary,  in  which  case  time  runs  from  the 
date  of  such  presentment,  and  where  the  acceptance  is 
made  after  maturity  the  time  probably  runs  from  date 
of  acceptance.  (Benj.'s  Chalmers,  B.  N.  &  C,  Art. 
252.)  Notice  of  dishonor  fixes  the  date  when  the  time 
begins  to  run  as  regards  the  drawer  and  indorsers. 
(Wood  v.  McMeans,  23  Tex.  481.) 

Any  circumstance  which  delays  or  defeats  the  opera- 
tion of  the  statute  of  limitations  in  the  case  of  an  ordi- 
nary contract  will  delay  or  defeat  it  in  the  case  of  a 
bill.  Thus  if  the  holder  is  a  minor,  married  woman,  a 
lunatic,  or  otherwise  protected  from  the  running  of  time, 
the  statute  will  not  begin  to  operate  until  the  disability 
is  removed.  So  the  bill  when  barred  from  the  operation 
of  the  statute  of  limitation  may  be  subsequently  ren- 
dered valid  by  an  acknowledgment  in  writing  by  the 
party  sought  to  be  charged. 


CHAPTER  VIII. 

PROMISSORY  NOTES  AND  CHECKS  SPECIALLY  CONSIDERED.* 

Sec.  845.  FORM  AND  INTERPRETATION 
OF  A  PROMISSORY  NOTE.— In  a  previous  sec- 
tion (a)ilc.  Sec.  752)  a  promissory  note  has  been  de- 
fined and  somewhat  explained,  and  we  only  need  to 
state  here  some  special  provision  applicable  to  promis- 
sory notes.  The  person  making  the  promise  is  called 
the  maker  of  the  note,  and  the  person  in  whose  favor 
it  is  made  is  called  the  payee.  These  two  parties  are 
essential  to  every  note,  and  a  note  payable  to  maker's 
order  would  not  be  a  note  until  a  payee  had  been  desig- 
nated by  indorsement.  (Miller  v.  Weeks,  22  Pa.  St. 
89.)  The  note  is  incomplete  until  delivery  has  been 
made  to  the  payee. 

As  regards  the  form  of  a  promissory  note,  any  writ- 
ing which  has  all  the  essentials  laid  down  for  a  prom- 
issory note  will  be  a  valid  note  if  the  intention  of  the 
maker,  as  gleaned  from  the  writing,  was  to  make  a  note. 
(Sibree  v.  Trip,  15  M.  &  W.  29.)  The  following  have 
been  held  not  to  be  notes  but  mere  evidences  of  indebt- 
edness: "Due  C  $100,  value  received;"  "I.  O.  U.  $100;" 


*The  preceding  chapters  have  discussed  principles  applicable 
alike  to  bills  of  exchange,  promissory  notes  and  checks,  and  when 
not  otherwise  limited  the  expression  "bill"  heretofore  used  re- 
ferred to  all  of  these  negotiable  instruments. 

130 


PROMISSORY    NOTES,    ETC.  131 

"1  acknowledge  the  within  note  to  be  just  and  due," 
written  on  the  back  of  a  note.  (Daggett  v.  Daggett, 
124  Mass.  149;  Currier  v.  Lockwood,  40  Conn.  349.) 
While  the  following  are  held  to  be  notes  since  importing 
a  promise  to  pay:  "I  owe  you  $100,  to  be  paid  May 
5th;"  "Due  C  or  order  $100  on  demand."  (Waithman 
v.  Elsee,  1  C.  &  K.  35;  Carver  v.  Hayes,  47  Me.  257.) 
There  may  be  two  or  more  makers  to  a  promissory 
note,  and  in  case  it  is  written  "I  promise,"  it  will  be 
considered  joint  and  several  if  they  are  not  partners. 
(Maiden  v.  Webster,  30  Ind.  317.)  If  written  "We 
promise,"  and  signed  by  several  it  is  considered  a  joint 
note  only.  (Barnett  v.  Juday,  38  Ind.  86.)  But  these 
holdings  are  subject  to  statutory  modifications. 

The  note  may  contain  a  pledge  of  collateral  security, 
and  give  the  payee  the  right  to  dispose  of  such  security, 
and  the  right  to  the  security  passes  with  a  transfer  of 
the  note,  and  free  from  equities  if  the  note  was  free. 
(Knipper  v.  Chase,  7  la.  145;  Duncan  v.  Louisville,  13 
Bush  378;  Kelley  v.  Whitney,  45  Wis.  110.) 

So  an  instrument  is  still  a  note  which  gives  the  holder 
an  option  of  taking  a  cash  sum,  or  the  performance  of 
another  act  from  the  maker.  Thus  where  the  note  prom- 
ised to  pay  a  sum  certain  in  money  or  in  goods  on  de- 
mand, it  was  held  a  valid  note  in  the  hands  of  the  payee, 
as  he  could  demand  money,  and  the  promise  to  pay 
money  was  absolute  notwithstanding  the  option.  (Hoss- 
tatter  v.  Wilson,  36  Barb.  307.)  But  as  to  the  maker, 
it  is  held  not  to  be  a  note.  (Dinsmore  v.  Duncan,  57 
N.  Y.  573.) 


132  NEGOTIABLE    INSTRUMENTS. 

Sec.  84G.  THE  TRANSFER  OF  PROMIS- 
SORY NOTES. — Promissory  notes  have  been  made 
negotiable  the  same  as  bills  of  exchange  by  statute, 
though  many  decisions  hold  that  they  are  negotiable 
independent  of  statute. 

Like  bills  of  exchange,  a  promissory  note,  payable 
on  demand  and  not  known  to  be  dishonored,  will  be 
deemed  overdue  after  the  lapse  of  a  reasonable  time 
from  the  date  of  its  issue.  Reasonable  time  is  a  ques- 
tion of  law,  but  governed  in  the  absence  of  statute,  by 
the  circumstances  of  the  case  and  the  intention  of  the 
parties.  (Herrick  v.  Wolverton,  41  N.  Y.  581;  Poor- 
man  v.  Mills,  39  Cal.  345.)  And  such  a  note  must  be 
presented  for  payment  within  a  reasonable  time  in  order 
to  charge  indorsers.  (Crim  v.  Starkweather,  88  N.  Y. 
339.) 

Sec.  847.  LIABILITY  OF  MAKER  OF  A 
NOTE. — The  maker  of  a  promissory  note,  in  general 
corresponds  to  the  acceptor  of  a  bill  of  exchange,  each 
being  the  principal  debtor  on  the  bill,  and  each  engages 
that  he  will  pay  at  maturity  according  to  the  tenor  of 
the  bill.  And  the  maker  of  a  note  payable  to  order, 
warrants  and  admits  to  a  bona  fide  holder  the  existence 
of  the  payee,  and  his  then  capacity  to  indorse.  (Esley 
v.  People,  23  Kan.  510;  Benj.'s  Chalmers,  B.  N.  &  C, 
Art.  287.) 

CHECKS. 

Sec.  848.  A  CHECK  DEFINED  AND  DIS- 
CUSSED.— Professor  Tiedeman  defines  a  check  "to 
be  a  draft  or  order,  having  essentially  the  character- 


PROMISSORY    NOTES,    ETC.  133 

istics  of  a  bill  of  exchange,  and  differing  from  the  bill 
(1)  in  being  drawn  on  a  bank  or  'banker,  (2)  appar- 
ently and  presumptively  against  a  deposit  of  funds,  and 
(3)  payable  on  demand  without  grace."* 

Contrary  to  the  English  rule,  in  the  United  States 
banks  are  required  as  a  matter  of  custom  to  pay  checks 
drawn  "to  order,"  and  must  at  their  peril  pay  to  the 
exact  party  mentioned  in  the  order.  (Dodge  v.  Natl. 
Exch.  Bank,  30  Ohio  St.  8.)  Unless  the  order  is  drawn 
on  a  bank  or  banker  it  will  not  be  a  check,  though  it 
may  be  a  bill.  (Espy  v.  Bank  of  Cin.,  14  Wall.  620.) 
To  constitute  a  check  the  order  should  be  drawn  against 
funds  in  the  hands  of  the  drawee  bank,  and  if  there  are 
no  funds  on  deposit  and  no  arrangement  made  for  meet- 

*Com.  Paper,  Sec.  430.  See  other  definitions,  ante,  Sec.  754. 
"Bank  checks  are  not  inland  bills  of  exchange,  but  have  many 
of  the  properties  of  such  commercial  paper,  and  many  of  the 
rules  of  the  law  merchant  are  alike  applicable  to  both.  Each 
is  for  a  specific  sum,  payable  in  money.  In  both  cases  there  is 
a  drawer,  drawee,  and  payee.  Without  acceptance  no  action 
can  be  maintained  by  the  holder  upon  either,  against  the  drawee. 
The  chief  points  of  difference  are,  that  a  check  is  always  drawn 
on  a  bank  or  banker.  No  days  of  grace  are  allowed.  The 
drawer  is  not  discharged  by  the  laches  of  the  holder  in  present- 
ment for  payment,  unless  he  can  show  that  he  has  sustained  some 
injury  by  the  default.  It  is  not  due  until  payment  is  demanded, 
and  the  statute  of  limitations  runs  only  from  that  time.  It  is 
by  its  face  the  appropriation  of  so  much  money  of  the  drawer 
in  the  hands  of  the  drawee  to  the  payment  of  an  admitted  lia- 
bility to  the  drawer.  It  is  not  necessary  that  the  drawer  of  a 
bill  should  have  fundf3  in  the  hands  of  the  drawee.  A  check  in 
such  cases  would  be  a  fraud."  (Merchants'  Bank  v.  State,  10 
Wall.  647.) 


1S4  NEGOTIABLE    INSTRUMENTS. 

ing  the  check  it  will  still  be  considered  a  check  if  appar- 
ently drawn  against  a  deposit.  (Champion  v.  Gordon, 
70  Pa.  St.  470.)  By  some  authorities  it  is  deemed  a 
bill  of  exchange.  (Planter's  Bank  v.  Keese,  7  Heisk. 
200.)  And  the  order  to  the  banker  must  be  payable  on 
demand  if  it  is  to  constitute  a  check,  since  it  is  sup- 
posed to  be  drawn  against  a  deposit  and  there  is  no  need 
of  acceptance  or  days  of  grace.  (Georgia  Natl.  Bank 
v.  Henderson,  46  Gat  496;  Andrew  v.  Blackley,  11 
Ohio  St.  89.)  A  few  authorities  hold  that  an  instrument 
may  be  a  check,  when  having  the  other  requisites,  though 
payable  a  stated  number  of  days  after  date  or  sight. 
(Bank  v.  Wheaton,  4  R.  I.  30.) 

The  usual  form  of  a  check  has  already  been  given 
(ante,  Sec.  754),  but  it  need  not  be  written  with  all 
the  exactness  of  the  form  given  to  constitute  a  valid 
check.  Thus  the  date  may  be  omitted,  or  the  check  may 
be  ante-dated  or  post-dated  and  is  still  valid.  A  post- 
dated check  may  be  issued,  but  is  not  payable  before 
the  given  date.  The  purpose  of  post-dating  checks  is 
to  give  the  debtor  time  to  make  payment.  The  usual 
form  of  a  check  has  the  name  of  the  bank  written  across 
the  top  in  large  letters  as  in  the  form  given,  but  when 
drawn  on  a  banker  or  banking  firm  and  not  on  a  char- 
tered bank,  the  address  is  customarily  put  in  the  left- 
hand  corner  as  in  bills  of  exchange.  (Tiedeman,  Com. 
Pap.,  Sec.  435.) 

Sec.  849.  CERTIFIED  CHECKS  DIS- 
CUSSED.— A  check  is  not  intended  for  circulation  or 
for  acceptance,  but  for  prompt  payment  on  present- 


Promissory  notes,  etc.  135 

ment.  In  the  United  States  a  custom  has  come  to  pre- 
vail whereby  the  bank  named  as  drawee  accepts  or 
certifies  to  the  holder  that  the  check  will  be  paid  on 
presentment.* 

By  the  certification  of  the  check  the  bank  becomes  the 
principal  debtor,  even  as  the  acceptor  of  a  bill  of  ex- 
change. (Bank  v.  Leach,  52  N.  Y.  350.)  It  precludes 
the  hank  from  setting  up  a  forged  signature  in  the  check 
or  the  lack  of  funds  of  the  drawer.  The  amount  of  the 
certified  check  is  in  effect  transferred  from  the  deposi- 
tor to  the  holder,  and  it  cannot  be  countermanded  or  con- 
trolled in  any  way  by  the  drawer.  (Gerard  Bank  v. 
Bank  of  Penn.  Twp.,  39  Pa.  St.  92.)  A  forgery  in 
the  body  of  the  check  is  a  defense  even  as  against  a  bona 
fide  holder,  as  the  bank  only  warrants  the  genuineness 
of  the  drawer's  signature.  (Bank  v.  Bank,  67  N.  Y. 
458;  Clews  v.  Bank,  89  N.  Y.  418;  contra,  La.  Bank  v. 
Bank,  28  La.  An.  189.) 

A  certified  check  circulates  as  cash,  since  it  is  an  abso- 


*"The  practice  of  certifying  checks  has  grown  out  of  the 
business  needs  of  the  country.  They  enable  the  holder  to  keep 
or  convey  the  amount  with  safety.  They  enable  persons  not  well 
acquainted  to  deal  promptly  with  each  other,  and  they  avoid 
the  delay  and  risks  of  receiving,  counting,  and  passing  from 
hand  to  hand,  large  sums  of  money.  It  is  computed  by  a  com- 
petent authority  that  the  average  daily  amount  of  such  checks 
in  use  in  the  city  of  New  York  is  not  less  than  one  hundred 
millions  of  dollars.  We  could  hardly  inflict  a  severer  blow  upon 
the  commerce  and  business  of  the  country  than  by  throwing  a 
doubt  on  their  validity."  (Swayne,  J.,  in  Merchants'  Bank  v. 
State  Bank,  10  Wall.  648.) 


136  NEGOTIABLE    INSTRUMENTS. 

lute  indebtedness  of  the  bank,  and  recovery  thereon  is 
only  stopped  by  the  statute  of  limitations.  (Willetts 
v.  Bank,  2  Duer  121.) 

The  usual  mode  of  certifying  a  check  is  for  the  proper 
officer  of  the  hank  to  write  across  the  face  of  the  check 
the  word  "good"  and  add  his  name  or  initials,  though 
either  alone  may  consititute  a  good  certification.  (Mors 
on  Banking,  284;  Barnett  v.  Smith,  30  N.  H.  256.)  A 
verbal  statement  to  the  holder  as  an  inducement  to  take 
the  check,  by  the  hank  officer,  will  operate  as  a  certifi- 
cation, unless  the  bank  has  no  funds  of  the  drawer  at 
the  time,  when,  to  satisfy  the  statute  of  frauds,  as  re- 
gards a  promise  to  answer  for  the  debt  of  another,  the 
promise  woidd  have  to  be  in  writing.  (Tiedeman,  Com. 
Pap.,  Sec.  437.) 

The  proper  officer  of  the  bank  to  certify  checks  is 
determined  by  the  by-laws  of  the  institution,  or  by  im- 
plication from  the  duties  of  the  officer.  The  board  of 
directors  have  the  power,  and  may  delegate  it  to  other 
officers.  The  president,  cashier  and  teller,  but  not  an 
assistant  cashier,  have  implied  power.  (Bank  v.  Bank, 
14  N.  Y.  G24;  Pope  v.  Bank  of  Albion,  57  N.  Y.  127.) 
But  such  officer  cannot  bind  the  bank  by  certifying  his 
own  check,  and  such  a  certificate  is  void  in  the  hands 
of  an  innocent  holder  if  it  appears  on  the  face  of  the 
paper,  or  the  holder  had  notice  of  the  fact.  (Claflin 
v.  Farmers'  Bank,  25  N.  Y.  294.)  The  officer  cannot 
bind  the  bank  by  certifying  a  check  for  a  drawer  not  in 
funds  except  to  a  bona  fide  holder  without  notice  of  the 
fact.    And  the  bank  will  not  be  bound  by  the  certiflca- 


PROMISSORY    NOTES,    ETC.  137 

tion  of  a  post-dated  check  prior  to  the  given  date. 
(Tiedeman,  Com.  Pap.,  Sec.  439;  Clarke  Natl.  Bank  v. 
Albion,  52  Barb.  593.) 

Sec.  850.  NEGOTIABILITY  OF  CHECKS.— 
Checks  are  negotiable  instruments,  and  as  such  are 
transferred  by  indorsement  or  delivery  as  bills  of  ex- 
change. A  bank  may  require  the  holder  of  a  check  pay- 
able to  bearer  to  indorse  his  name  on  it  for  the  double 
purpose  of  a  receipt  and  a  memorandum  of  the  person 
receiving  payment.  Such  an  indorser  is  not  bound  un- 
less it  can  be  shown  that  he  signed  with  the  intention 
of  becoming  a  regular  indorser.  (Daniel,  Sec.  1653; 
Tiedeman,  Com.  Pap.,  Sec.  440.) 

Sec.  851.  PRESENTMENT  FOR  PAYMENT, 
AND  PROTEST  OF  CHECKS.— As  regards  the 
liability  of  indorsers,  presentment  for  payment,  notice 
of  dishonor  and  protest,  are  duties  to  be  performed  by 
the  holder  of  a  check,  with  equal  or  greater  precision 
and  dispatch  than  in  the  case  of  other  commercial  paper. 
Protest  of  a  check  must  be  made  to  hold  drawer  or 
indorsers  the  same  as  in  case  of  bills  and  notes.  ( Nor- 
ris  v.  Despard,  38  Md.  491.) 

As  regards  the  drawer,  the  presentment  for  payment, 
and  notice  of  dishonor  if  not  made  or  given  within  a 
reasonable  time  by  the  holder  as  would  be  necessary  in 
the  case  of  a  bill  of  exchange,  will  not  discharge  the 
drawer  unless  he  has  suffered  actual  damage  through 
the  delay.  This  damage  is  usually  caused  by  the  failure 
of  the  bank  before  the  check  is  presented  for  payment. 
(Stewart  v.  Smith,  17  Ohio  St.  85;  Stevens  v.  Park, 


138  NEGOTIABLE    INSTRUMENTS. 

73  111.  387.)  The  indorsers  would  be  discharged  on 
account  of  the  laches  in  making  presentment  or  giving 
notice  irrespective  of  damage.  (Murray  v.  Judah,  6 
Cow.  490.) 

Sec.  852.  SAME  SUBJECT— TIME  WITHIN 
WHICH  CHECK  MUST  BE  PRESENTED 
FOR  PAYMENT.— A  check  is  deemed  to  be  pre- 
sented within  a  reasonable  time  and  with  sufficient 
promptness  to  charge  prior  parties  when  presented  ac- 
cording to  the  following: 

1.  Where  the  payee  and  the  bank  on  which  the  check 
is  drawn  are  in  the  same  place,  the  check  must,  unless 
excused  by  special  circumstances,  be  presented  on  the 
next  day  after  it  is  received. 

2.  When  the  person  who  receives  the  check  and  the 
bank  on  whom  it  is  drawn  are  in  different  places,  the 
check  must,  in  the  absence  of  special  circumstances,  be 
forwarded  for  presentment  on  the  day  after  it  is  re- 
ceived, and  the  agent  to  whom  it  is  forwarded  must,  in 
like  manner,  present  or  forward  it  on  the  day  after  he 
receives  it.*  Non-business  days  are  excluded  in  com- 
puting time  under  the  above  rules. 

The  above  rules  are  subject  to  the  preceding  section 
as  to  the  necessity  of  actual  damage  suffered  by  the 
drawer  before  he  will  be  discharged  by  an  unreasonable 
delay  in  presentment. 

*Benj.'s  Chalmers,  B.  N.  and  Checks,  Art.  257;  Cox  v.  Boone, 
8  W.  Va.  500;  Morrison  v.  Bailey,  5  O.  St.  13;  Himmelman 
v.  Hataling,  40  Cal.  Ill;    Smith  v.  Jones,  20  Wend.  192. 


PROMISSORY    NOTES,    ETC.  130 

The  excuses  for  delay  in  presenting  a  check  for  pay- 
ment or  giving  notice  of  dishonor  are  the  same  as  those 
discussed  heretofore  under  Chapter  VI.  One  of  the 
most  common  excuses  being  that  the  check  has  been 
drawn  against  a  bank  not  having  funds  of  drawer,  and 
in  such  case  it  is  unnecessary  to  give  notice  of  dishonor 
to  the  drawer.  (Fletcher  v.  Pierson,  69  Ind.  281;  Kin- 
yon  v.  Stanton,  44  Wis.  569.)  And  the  same  is  true 
if  payment  has  been  countermanded.  (Woodin  v. 
Frayzer,  38  N.  Y.  S.  C.  190.) 

Sec.  853.  SAME  SUBJECT— WHEN  CHECK 
IS  DEEMED  OVERDUE  AND  CHARGES 
HOLDER  WITH  THE  EQUITIES.— There  is 
some  uncertainty  among  the  authorities  as  to  when  a 
check  not  known  to  have  been  dishonored  is  overdue 
so  as  to  charge  the  holder  with  equities  of  which  he  had 
no  notice  when  taking  the  note;  thus  Professor  Tiede- 
man  states  that  a  check  would  be  considered  stale  or 
overdue  "whenever  the  delay  in  presentment  has  been 
so  long  that,  in  the  light  of  the  circumstances  of  the 
particular  case,  it  is  sufficient  to  arouse  the  suspicions 
of  a  reasonably  prudent  man."  (Com.  Pap.,  Sec.  446.) 
Thus  under  different  circumstances  a  check  has  been 
held  to  be  overdue  from  a  delay  in  presentment  of  two 
years  (Skillman  v.  Titus,  32  N.  J.  L.  96)  ;  one  year 
(Bank  v.  Woodward,  18  Pa.  St.  357)  ;  fourteen  months 
(Cowing  v.  Altman,  71  N.  Y.  436)  ;  five  days  (Down 
v.  Hailing,  4  B.  &  C.  330).  And  a  delay  in  present- 
ment for  the  following  periods  has  been  held  not  to 
make  the  check  overdue  as  regards  the  holder:    one 


140  NEGOTIABLE    INSTRUMENTS. 

month  (Lester  v.  Given,  8  Busk.  357)  ;  ten  days  (Ames 
v.  Merriam,  98  Mass.  294.) 

Sec.  854.  WHO  MAY  DRAW  CHECKS 
AGAINST  DEPOSITS.— The  depositor  or  his 
authorized  agent  should  execute  the  check.  A  firm  de- 
posit may  be  checked  against  by  any  one  of  the  active 
partners  by  signing  the  firm  name.  A  number  of  per- 
sons, not  partners,  having  a  deposit  to  their  joint  credit, 
must  all  unite  in  drawing  checks  against  it,  otherwise 
if  the  deposit  is  to  their  joint  and  several  credit.  (Morse 
on  Banking  2G6.)  This  rule  is  applicable  to  cases  where 
two  or  more  trustees  deposit  trust  funds,  but  not  to 
personal  representatives,  any  one  of  whom  may  draw 
against  funds  of  the  decedent's  estate.  (Allen  v.  Dun- 
das,  3  T.  R.  125.)  A  deposit  by  an  individual  as  a  trust 
fund  cannot  be  held  for  his  private  debt  to  the  bank. 
(Cent.  Natl.  Bank  v.  Ins  Co.,  104  U.  S.  54.) 

Sec.  855.  WHEN  A  CHECK  MAY  BE  RE- 
VOKED.— Death  or  bankruptcy  of  the  drawer  is  held 
to  revoke  the  authority  of  a  banker  to  pay  a  check. 
Thus  a  check  given  by  the  drawer  in  contemplation  of 
death  must  be  presented  for  payment  by  the  donee  be- 
fore the  drawer's  death  in  order  to  entitle  the  donee 
to  receive  the  amount  as  a  gift  in  contemplation  of 
death.  (Benj.'s  Chalmers,  B.  N.  &  C,  Art.  262.) 
This  is  the  same  rule  applicable  to  bills,  since  there  is 
no  consideration  for  the  making  of  the  promise.  Where 
the  check  is  supported  by  a  valuable  consideration  it  is 
not  revoked  by  the  death  of  the  drawer.      (Burke  v. 


PROMISSORY    NOTES,    ETC.  141 

Bishop,  27  La.  An.  465;  Tate  v.  Hilbert,  2  Ves.  Jr. 
118;  Benj.'s  Chalmers,  B.  N.  &  C,  Art.  261.) 

Sec.  856.  RIGHTS  AND  DUTIES  OF  THE 
BANK  OR  BANKER.— A  banker  is  bound  to  honor 
his  depositor's  checks  (quere,  as  to  his  bills),  properly 
presented,  to  the  extent  of  the  funds  of  the  depositor 
in  his  hands,  and  for  refusing  so  to  do  he  becomes  liable 
to  such  depositor  for  damages  to  his  credit.  (Marzetti 
v.  Williams,  1  B.  &  Ad.  415.)  The  bank  is  entitled  to 
have  the  funds  paid  in  a  reasonable  time  before  they 
are  drawn  against,  and  also  to  a  reasonable  time  to  ascer- 
tain what  is  the  state  of  the  account  between  itself  and 
the  depositor.  It  being  allowed  the  bank  to  return  a 
check  within  twenty-four  hours  after  presentment  in 
case  a  deficiency  in  the  deposit  is  discovered.  ( Overman 
v.  Bank,  31  N.  J.  L.  563.)  But  this  right  is  denied 
if  the  check  has  been  accepted  and  the  money  paid  out 
or  credited  to  the  checkholder.  (Oddie  v.  Natl.  City 
Bank,  45  N.  Y.  735.)  A  check  of  a  third  person  pre- 
sented by  a  depositor  and  credited  on  his  bank-book  by 
the  bank,  is  deemed  received  for  collection,  and  if  not 
paid  may  be  returned,  and  the  credit  cancelled.  (Natl. 
Gold  Bank  v.  McDonald,  51  Cal.  65.) 

The  bank  is  responsible  to  the  drawer  or  holder  if  the 
check  is  paid  on  a  forged  indorsement,  or  paid  to  one 
not  an  indorsee  or  a  bona  fide  assignee  of  the  check. 
(Dodge  v.  Natl.  Exch.  B.,  30  O.  St.  1;  Freund  v.  Imp. 
&  Trad.  N.  B.,  76  N.  Y.  352.) 

The  bank  or  banker  is  under  no  obligation,  except 
by  agreement,  to  allow  a  depositor  to  overdraw  his  ac- 


142  NEGOTIABLE    INSTRUMENTS. 

count.  And  in  general,  if  the  funds  are  not  sufficient 
to  pay  a  check  in  full,  part  payment  need  not  be  made. 
(Daniel,  Sec.  1620.)  The  hank  must  pay  checks  in  the 
order  of  their  presentment  so  long  as  the  deposit  lasts, 
and  should  not  attempt  to  pro  rate  an  insufficient  fund, 
or  give  preference  to  a  holder  of  a  check  presented  at  a 
later  hour  than  others.  (Tiedeman,  Com.  Pap.,  Sec. 
450.) 

The  bank  may  recover  the  money  paid  on  an  altered 
check  from  the  person  to  whom  it  has  been  paid,  since 
the  holder  guarantees  the  genuineness  of  the  contents 
of  the  check,  and  this  applies  to  certified  checks.  The 
bank  only  warranting  the  genuineness  of  the  signature. 
(Espy  v.  Bank  of  Cinn.,  18  Wall.  614;  Parker  v.  Roser, 
67  Ind.  500.) 

As  regards  forged  signatures  of  drawer  or  indorser, 
the  bank  is  usually  held  strictly  to  the  obligation  to 
know  the  signature  of  its  depositor,  and  money  paid 
out  upon  a  forged  signature  of  a  depositor  cannot  be 
recovered  back.  Others  hold  that  the  bank  may  recover 
money  so  paid  out  where  the  signature  was  so  cleverly 
forged  as  to  free  the  bank  from  the  suspicion  of  negli- 
gence, and  the  discovery  is  made  and  the  money  de- 
manded back  in  time  to  allow  the  holder  to  have  recourse 
against  other  parties.  (Daniel,  1655a.)  Money  paid 
out  on  the  forged  signature  of  an  indorsee  or  payee  may 
be  recovered  from  the  person  to  whom  it  is  paid,  but 
the  bank  is  liable  to  the  real  payee  or  indorsee.  (Sev- 
enth Natl.  B.  v.  Cook,  73  Pa.  St.  483.) 

The  holder  of  a  check  is  quite  generally  held  to  have 


PROMISSORY    NOTES,    ETC.  143 

no  right  of  action  against  the  bank  for  a  refusal  to  pay 
the  check,  and  for  the  same  reason  that  the  holder  of 
an  unaccepted  bill  of  exchange  cannot  sue  the  drawee 
for  refusing  to  accept,  that  is,  because  there  is  no  privity 
between  the  holder  and  drawee  unless  the  bill  would 
constitute  an  assignment  pro  tanto  of  the  fund  drawn 
against,  and  this  is  not  feasible  by  another  rule  of  law 
which  denies  the  right  of  a  creditor  to  split  up  a  single 
indebtedness  into  a  number  of  obligations  or  rights  of 
actions.  A  few  authorities  do  hold  that  a  check  does 
operate  pro  tanto  as  an  assignment  of  the  fund,  and 
Professor  Tiedeman  makes  a  strong  argument  that  in 
the  case  of  checks  this  would  be  no  burden  on  the  banker, 
since  it  impliedly  agrees  to  pay  out  the  fund  in  parts 
as  the  depositor  elects.  (Com.  Pap.,  Sec.  452.)  But 
the  weight  of  authority  is  against  the  right  of  the  check- 
holder  to  sue  the  bank.  (Brown  v.  Leckie,  43  111.  500; 
Roberts  v.  Austin,  26  la.  316.) 

The  holder  of  a  check  on  a  bank  is  entitled  to  receive 
payment  free  from  any  offset  by  the  bank  for  a  debt 
which  such  holder  may  owe  the  bank.  (Brown  v.  Leckie, 
supra. ) 

Sec.  857.  RIGHTS  AND  LIABILITIES  OF 
DRAWER  OF  CHECK.— After  presentment  for 
payment  and  dishonor  the  check  is  evidence  of  the  in- 
debtedness of  the  drawer,  the  check  is  presumed  to  be 
given  in  satisfaction  of  a  debt,  but  may  be  shown  to 
have  constituted  a  loan  from  drawer  to  payee,  and  is 
then  evidence  of  the  amount.  (Tiedeman,  Com.  Pap., 
Sec.  455.)     When  held  by  the  drawer  the  check  is  pre- 


144  NEGOTIABLE    INSTRUMENTS. 

sumptively  a  receipt  for  money  paid  the  payee,  if  it  was 
made  payable  to  order.  But  when  the  check  is  payable 
to  bearer,  affirmative  evidence  would  be  required  to  show 
who  received  the  payment.  (Conelly  v.  McKean,  G4 
Pa.  St.  113;  People  v.  Baker,  20  Wend.  002.)  The 
check  is  not  evidence  of  payment  of  a  particular  account, 
without  proof  of  the  special  consideration.  (xVubert  v. 
Walsh,  4  Taunt.  29.3;  Tiedeman,  Com.  Pap.,  Sec.  45.5.) 

The  check  when  paid  becomes  the  property  of  the 
drawer,  but  may  be  kept  by  the  bank  as  a  voucher  or 
receipt  for  money  paid  out  on  the  account  of  the  de- 
positor until  the  account  is  balanced  or  settled,  when 
they  are  to  be  delivered  up  to  the  depositor. 

Sec.  858.  ACCOUNT  PAID  BY  CHECK  NOT 
DISCHARGED  UNTIL  THE  CHECK  IS 
PAID. — It  is  the  invariable  rule  of  law  that  when  a 
check  is  given  in  payment  of  a  debt  it  does  not  con- 
stitute an  absolute  discharge  of  that  debt  until  it  is  paid. 
(Smith  v.  Miller,  43  N.  Y.  151;  Hearth  v.  Rhodes,  66 
111.  351.)  And  the  surrender  of  a  bill  or  note  could 
not  be  compelled  until  the  check  given  in  payment  had 
been  paid.     (Barnett  v.  Smith,  30  N.  H.  256.) 


CHAPTER  IX. 

PAPER   MONEY,    COUPON    BONDS,   AND   QUASI-NEGOTIABLE 

PAPER. 

Sec.  859.  KINDS  OF  PAPER  MONEY,  AND 
EFFECT  AS  NEGOTIABLE  INSTRUMENTS. 

— A  number  of  different  kinds  of  paper  money  exist  in 
the  United  States,  some  being  made  by  law  legal  tender 
and  receivable  in  payment  on  all  debts,  while  others  sim- 
ply pass  as  currency  on  the  credit  of  the  bank  or  fund 
which  they  are  drawn  against.  All  these  species  of 
paper  money  are  negotiable  instruments,  payable  to 
bearer,  and  transferred  by  delivery.  They  are:  United 
States  Treasury  Notes,  Silver  and  Gold  Certificates, 
and  Bank  Notes. 

United  States  Treasury  Notes  are  in  form  promis- 
sory notes  payable  to  bearer  on  demand.  By  statute 
they  are  made  legal  tender,  and  their  issue  by  the  United 
States,  though  questioned  at  first,  has  been  upheld  by 
the  Supreme  Court.  (Juillard  v.  Greenman,  110  U. 
S.  421.)  Unlike  ordinary  promissory  notes  all  kinds 
of  paper  money  is  printed  on  fine  paper  of  a  texture 
selected  to  prevent  counterfeiting.  The  silver  and  gold 
certificates  issued  by  the  federal  government  are  not 
legal  tender,  and  are  payable  as  the  certificate  states, 
in  gold  or  silver  coin  deposited  in  the  treasury  and 
payable  to  bearer  on  demand. 

145 


146  NEGOTIABLE    INSTRUMENTS. 

Bank-notes  or  bank-bills  are  the  promissory  notes  of 
incorporated  banks  intended  to  pass  current  as  money. 
(Tiedeman,  Com.  Pap.,  Sec.  464.)  When  they  are 
issued  and  made  payable  at  a  future  time  they  are  called 
post-notes,  otherwise  they  are  payable  to  bearer  on  de- 
mand. Bank-notes  not  being  legal  tender,  they  are  not 
a  valid  tender  in  payment  of  a  debt  if  objected  to,  and 
this  is  true  as  to  a  debt  due  to  the  bank  that  issued 
them  unless  by  statute  they  are  made  receivable  for  all 
debts  owing  the  bank  of  issue.  (Thomas  v.  Todd,  6 
Hill  340;  Bank  of  U.  S.  v.  Bank  of  Ga.,  10  Wheat. 
833;  Bank  v.  Roosevelt,  9  Cow.  409.)  Bank-notes  and 
post-notes  are  negotiable,  and  since  they  are  designed 
to  circulate  rapidly  as  currency  or  money,  the  holder  is 
presumed  to  be  the  bona  fide  owner  even  though  guilty 
of  negligence  in  taking  the  notes,  and  can  compel  pay- 
ment to  him  though  the  notes  were  stolen  from  the  true 
owner.  (Tiedeman,  Com.  Pap.,  Sec.  464;  Worcester 
Co.  Bank  v.  Dorchester  Bank,  10  Cush.  488.) 

The  holder  should  receive  the  notes  in  the  usual  course 
of  business  and  not  as  a  pledge  or  security  upon  an 
agreement  not  to  put  them  in  circulation,  in  order  to 
be  deemed  a  bona  fide  holder.  (Davenport  v.  City 
Bank,  9  Paige  12.) 

Since  bank-notes  are  specially  intended  to  circulate 
indefinitely,  they  are  not  to  be  deemed  overdue  because 
not  presented  a  reasonable  time  after  issue.  And  they 
may  be  re-issued  after  payment,  unless  protested  for 
non-payment,  in  which  case  the  holder,  with  or  without 


MONEY,    BONDS,    ETC.  147 

notice,  would  be  charged  with  equities.     (2  Parsons,  N. 
&  B.  95;  Burroughs  v.  Bank,  70  N.  C.  284.) 

The  transfer  is  customarily  made  by  delivery  only, 
though  a  transfer  by  indorsement  may  be  made.  In 
either  case  the  transferor  warrants  the  genuineness  of 
the  note,  and  in  case  of  its  being  counterfeit  he  is  the 
loser,  and  the  debt  for  which  it  was  transferred  is  not 
cancelled.  (Young  v.  Adams,  6  Mass.  182;  Ramsdale 
v.  Horton,  3  Pa.  St.  330.)  The  receiver  of  counterfeit 
notes  must  give  notice  of  its  character  within  a  reason- 
able time  or  he  will  lose  his  remedy  against  the  trans- 
feror. Reasonable  time  is  governed  by  the  facts  of  each 
case.  (Simms  v.  Clark,  11  111.  137;  Gloucester  Bank 
v.  Salem  Bank,  17  Mass.  44.)  In  case  the  holder  of 
bank-bills  or  notes  loses  them  the  loss  falls  on  him,  unless 
he  can  show  that  certain  specific  notes  were  destroyed 
and  indemnify  the  bank  against  their  future  present- 
ment for  payment.  In  case  of  a  partial  destruction  or 
loss  of  a  note  the  authorities  differ,  some  holding  that  a 
recovery  may  be  had  by  showing  the  facts  without  an 
indemnifying  bond,  others  requiring  a  bond.  (Bank  of 
U.  S.  v.  Sill,  5  Conn.  112;  Commercial  Bank  v.  Bene- 
dict, 18  B.  Monr.  311;  Story  on  Bills,  Sec.  448.) 

State  bank-notes  have  been  superseded  by  National 
bank-notes,  and  these  later  notes  differ  only  from  the 
former  in  that  they  are  secured  by  the  federal  govern- 
ment, which  guarantees  their  pajmient.  The  govern- 
ment is  protected  by  the  deposit  of  government  bonds 
by  the  banks  issuing  the  notes. 


148  NEGOTIABLE    INSTRUMENTS. 

COUPON   BONDS. 

Sec.  860.  COUPON  BONDS  DEFINED  AND 
KXPLAINED. — "A  coupon  bond  is  a  primary  obli- 
gation, in  the  nature  of  a  promissory  note,  promising 
to  pay  a  sum  of  money  on  a  day  certain  in  the  future, 
to  which  are  attached  certain  other  obligations  called 
coupons,*  which  call  for  the  payment  of  the  installments 
of  interest  on  the  principal  debt,  as  they  fall  due ;  each 
coupon  representing  an  installment  of  interest,  and  pay- 
able when  the  installment  of  interest  falls  due."  (Tiede- 
man,  Com.  Pap.,  Sec.  471.) 

The  coupon  is  practically  a  separate  promissory  note, 
but  its  payment  is  protected  by  the  mortgage  given  to 
secure  the  primary  bond;  it  is  payable  at  maturity  with- 
out grace,  and  where  written  in  the  form  of  a  draft  or 
bill  on  a  banker,  it  need  not  be  presented  for  accept- 
ance. (Arents  v.  Commonwealth,  18  Gratt.  773;  Beaver 
Co.  v.  Armstrong,  44  Pa.  St.  63.) 

Public  corporations,  governmental  and  municipal, 
and  all  sorts  of  private  corporations  may  and  do  issue 
coupon  bonds.  The  loans  of  the  Federal  and  State  gov- 
ernments are  usually  made  in  this  way.  (Natl.  Bank 
v.  Co.  of  Yankton,  101  U.  S.  133.)  Individuals  are 
also  held  to  be  able  to  issue  coupon  bonds,  and  the  only 
question  of  this  power  is  from  the  fact  that  these  bonds 
are  executed  under  seal,  which  by  the  law  merchant  is 


*Coupon  is  derived  from  the  French  verb,  couper,  to  cut,  since 
they  are  made  detachable,  and  designed  to  be  cut  off  when  they 
fall  due.     (Daniel,  Sec.  1489.) 


MONEY,    BONDS,    ETC.  149 

excused  in  the  case  of  corporations  but  not  in  the  case  of 
individuals.  The  seal  being  held  to  destroy  their  nego- 
tiability. Coupon  bonds  are  negotiable  notwithstanding 
the  presence  of  the  seal,  if  they  contain  words  of  nego- 
tiability. (Comrs.  of  Manor  v.  Clark,  94  U.  S.  279; 
White  v.  R.  R.  Co.,  21  How.  175;  Barrett  v.  Co.  Court, 
44  Mo.  197.) 

The  holder  or  owner  of  the  coupon  bond  has  the  same 
rights  and  privileges  as  regards  it  as  he  would  if  it  were 
a  bill  of  exchange,  and  the  same  rules  operate  to  fix 
his  position  as  a  bona  fide  holder  or  not  as  in  the  case 
of  other  commercial  paper.  Thus  if  the  coupon  is  over- 
due at  the  time  of  transfer,  the  purchaser  takes  it  sub- 
ject to  all  equitable  defenses.  (Bank  v.  Co.  Comrs.,  14 
Minn.  79;  Tiedeman,  Com.  Pap.,  Sec.  473.) 

Sec.  861.  TRANSFER,  PRESENTMENT 
FOR  PAYMENT  OF  COUPON  BONDS.— Cou- 
pon bonds  may  be  made  payable  to  order  and  trans- 
ferred by  indorsement,  but  they  are  ordinarily  payable 
to  bearer  and  transferred  by  delivery.  (City  of  Lex- 
ington v.  Butler,  15  Wall.  295;  Roberts  v.  Bowles,  101 
U.  S.  122.)  A  party  indorsing  a  coupon  bond  assumes 
the  same  liability  as  the  indorser  of  other  commercial 
paper,  and  both  indorser  and  transferor  by  delivery 
warrant  the  genuineness  of  the  bond,  and  would  be  held 
responsible  for  the  consideration  received  if  the  bond 
was  forged.     (Smith  v.  McNair,  19  Kans.  330.) 

*"The  bond  and  coupons  are  generally  printed  on  paper  of 
a  very  fine  texture,  more  or  less  beautifully  engraved.  But  in 
other  respects  the  bond  differs  in  form  very  little  from  a  promis- 


150  NEGOTIABLE    INSTRUMENTS. 

For  the  purpose  of  fixing  the  liability  of  an  indorser 
the  coupons  must  be  presented  at  maturity,  and  within 
a  reasonable  time  after  maturity  to  hold  a  guarantor. 
(Bonner  v.  New  Orleans,  2  Woods  C.  C.  135;  Arents 
v.  Commonwealth,  18  Gratt.  773.)  Otherwise  the  cou- 
pons need  not  be  presented  on  the  day  of  maturity  to 
hold  the  principal  obligors  on  the  coupons.  ( Mayor  v. 
Patomac  Ins.  Co.,  58  Tenn.  29G.)  And  interest  may 
be  recovered  without  presentment  at  maturity,  unless 
the  corporation  should  show  that  it  was  ready  to  pay 
the  coupon  at  the  stipulated  place.  (Walnut  v.  Wade, 
103  U.  S.  683;  North  Penn.  R.  R.  Co.  v.  Adams,  54 
Pa.  St.  97.) 

The  coupons  represent  the  interest  on  the  bond  until 
maturity,  after  maturity  the  bond  itself  draws  interest 
if  not  paid.  The  coupon,  if  not  paid  at  maturity,  draws 
interest,  and  may  be  recovered  by  the  holder  with  ex- 
change, where  exchange  could  be  recovered  on  bills  and 


sory  note.  It  and  the  coupons  are  usually  signed  by  the  presi- 
dent of  the  corporation,  or  the  chief  executive  of  the  town  or 
municipality,  which  issues  them,  and  countersigned  by  the  sec- 
retary, treasurer,  cashier,  or  other  clerk  of  the  corporation,  ac- 
cording to  its  by-laws,  or  the  statutes  'in  such  cases  made  and 
provided.'  These  signatures  may  be  either  written  or  printed. 
The  coupon  may  take  on  any  form ;  sometimes  it  is  a  promissory 
note ;  at  others  a  bill  of  exchange  on  the  treasury  of  the  corpora- 
tion;  a  draft  or  order  without  naming  any  drawee;  a  check,  and 
a  mere  due  bill  or  acknowledgment  of  indebtedness."  (Tiede- 
man,  Com.  Paper,  Sec.  475,  citing,  Thompson  v.  Lee  Co.,  3 
Wall.  327;  Moran  v.  Comrs.  of  Miami  Co.,  2  Black  722;  Mer- 
cer Co.  v.  Hubbard,  45  111.  140,  and  others.) 


MONEY,    BONDS,    ETC.  151 

notes.     (Jeffersonville  v.  Patterson,  26  Ind.  16;  Tiede- 
man,  Com.  Pap.,  Sec.  477.) 

Sec.  862.  ACTIONS  ON  BONDS  AND  COU- 
PONS, AND  DEFENSES  ON  MUNICIPAL 
BONDS. — In  case  the  holder  is  the  owner  of  both  bond 
and  coupons  he  may  bring  an  action  in  his  own  name 
on  both  bond  and  coupons.  (Soc.  for  Savings  v.  City 
of  N.  London,  29  Conn.  175.)  And  the  holder  of  the 
coupons  may  maintain  his  action  on  them  independently 
of  the  holder  of  the  bond.  (Beaver  Co.  v.  Armstrong, 
44  Pa.  St.  63;  Bank  v.  Tabor,  52  Vt.  87;  Town  of 
Cicero  v.  Clifford,  53  Ind.  191.)  So  the  coupons  may 
be  sued  on  where  the  bonds  have  been  previously  paid 
and  surrendered.  (Natl.  Exch.  Bank  v.  Hartford,  etc., 
R.  R.  Co.,  8  R.  I.  373.) 

Where  the  corporation  denies  its  liability  on  bonds, 
the  consideration  paid  for  them  by  the  holder  may  be 
recovered,  if  such  holder  did  not  participate  in  the 
wrongful  issue,  and  the  issuing  was  not  a  malum  in  se. 
(Draper  v.  Springport,  104  U.  S.  501;  Louisiana  v. 
Wood,  102  U.  S.  294.). 

Since  a  municipal  corporation  in  its  issue  of  coupon 
bonds  is  limited  by  its  charter  and  implied  powers,  and 
may  not  in  any  case  issue  them  for  a  private  end,  but 
only  for  a  public  purpose,  the  holder  of  municipal  obli- 
gations or  coupon  bonds  must  take  notice  that  they 
are  not  issued  ultra  vires,  that  is,  outside  the  power  of 
the  municipality.  The  scope  of  its  powers  is  deemed  a 
matter  of  public  law,  and  every  one  is  charged  with 
notice  of  the  limitations  set.     (Bissell  v.  Kankakee,  64 


152  NEGOTIABLE    INSTRUMENTS. 

111.  249;  Veeder  v.  Lima,  19  Wis.  298.)  Where  the 
municipality  has  the  power  to  issue  the  bonds,  the  fraud 
or  neglect  of  agents  as  to  their  negotiation  or  execution 
with  prescribed  formalities  cannot  be  set  up  as  a  de- 
fense to  the  action  of  a  bona  fide  holder.  (Tread well  v. 
Commissioners,  11  Ohio  St.  183;  Gould  v.  Sterling,  23 
N.  Y.  463.) 

Sec.  803.  CERTIFICATES  OF  DEPOSIT  AS 
NEGOTIxVBLE  INSTRUMENTS.— By  a  certifi- 
cate of  deposit  is  meant  the  receipt  in  writing  given 
by  a  bank  or  banker  in  acknowledgment  of  money  re- 
ceived, and  which  states  that  the  amount  designated 
therein  is  payable  to  bearer,  to  the  order  of  the  depositor, 
or  a  third  person.  The  power  of  a  bank  to  issue  them 
is  co-extensive  with  the  power  to  issue  promissory 
notes.* 

Certificates  of  deposit  are  transferred  by  delivery  or 
by  indorsement  according  as  they  are  in  terms  payable 
to  bearer  or  to  order.  By  the  weight  of  authority  they 
are,  when  possessing  the  essential  features  of  a  nego- 
tiable instrument,  accorded  all  the  privileges  and  charac- 
teristics which  pertain  to  other  forms  of  commercial 


*  Morse  on  Banking,  53.  "They  are  used,  instead  of  draw- 
ing checks  on  the  fund  deposited,  whenever  the  depositor  desires 
a  continuing  security,  drawing  interest,  and  payable  on  demand 
or  at  some  time  in  the  future.  The  certificate  of  deposit  is  sup- 
posed to  have  originated  with  the  goldsmiths  of  England,  who, 
in  the  course  of  their  banking  business,  were  in  the  habit  of  giv- 
ing to  the  depositors,  receipts  for  the  money  deposited,  in  the 
form  of  a  promissory  note."  (Tiedeman,  Com.  Paper,  Sec. 
485.) 


MONEY,    BONDS,    ETC.  153 

paper.  (Lynch  v.  Goldsmith,  64  Ga.  42;  Lafayette 
Bank  v.  Ringel,  51  Ind.  393;  Howe  v.  Hartness,  11 
O.  St.  449;  Tripp  v.  Curtenius,  36  Mich.  494;  contra, 
London  Sav.  Soc.  v.  Savings  Bank,  36  Pa.  St.  498; 
Patterson  v.  Poindexter,  6  Watts  &  Serg.  227.)  As  a 
negotiable  instrument  it  must  be  taken  before  maturity 
if  the  holder  is  to  be  free  from  equitable  defenses.  Like- 
wise it  must  not  be  overdue  when  transferred  or  the 
holder  will  be  charged  with  equities.  Demand  and  re- 
fusal are  necessary  to  make  the  certificate  overdue  when 
payable  on  demand.  (Pardee  v.  Fish,  60  N.  Y.  271.) 
The  certificate  of  deposit  when  given  in  payment  of  a 
debt  is  presumed  a  conditional  payment  unless  the  cred- 
itor transfers  the  certificate  in  payment  of  his  own  debts 
instead  of  presenting  it  for  prompt  payment.  (Bower 
v.  Hoffman,  23  Md.  264;  Lindsey  v.  McClellan,  18 
Wis.  481.) 

Sec.  864.  BILLS  OF  LADING  AS  NEGO- 
TIABLE INSTRUMENTS.— "A  bill  of  lading  is 
very  often  called  a  negotiable  instrument.  But,  al- 
though it  does  possess  some  of  the  qualities  of  negotia- 
bility, it  is  not  strictly  one  independently  of  statute,  and 
is  more  properly  described  as  quasi-negotiable/3* 


*Tiedeman,  Com.  Paper,  Sec.  491.  "The  bill  of  lading  may 
be  defined  to  be  a  written  acknowledgment  by  a  common  car- 
rier of  the  receipt  of  certain  goods  described  therein,  and  an 
agreement  to  transport  them  to  their  place  of  destination,  to 
be  there  delivered  in  good  order  to  the  consignee  or  his  assigns. 
It  has,  therefore,  a  double  character,  being  both  a  receipt  and 
contract  for  the  carriage  of  goods.     As  a  receipt,  it  has  become, 


15*  NEGOTIABLE    INSTRUMENTS. 

While  a  bill  of  lading  as  a  negotiable  instrument  is 
regulated  in  some  States  by  statute,  and  given  the  same 
characteristics  as  other  commercial  paper,  it  has  certain 
quasi  negotiable  characteristics  at  common  law.  Thus 
while  the  transferee  does  not  get  any  better  title  to  the 
goods  than  his  transferor  had  in  case  the  bill  had  been 
found  or  stolen  by  such  transferor,  yet  a  bona  fide 
transferee  will  take  the  bill  of  lading  free  from  the 
vendor's  right  of  stoppage  in  transitu.  (Newhall  v. 
Cent.  P.  R.  R.  Co.,  51  Cal.  345;  Lickbarrow  v.  Mason, 
1  Sm.  Lead.  Cas.  895-6;  Emory  v.  Natl.  Bank,  25  O. 
St.  3G0.)  And  by  some  authorities  the  common  car- 
rier cannot  dispute  the  correctness  of  the  statement  in 
the  bill  though  the  goods  had  never  been  received  by 
him,  when  the  bill  of  lading  has  passed  into  the  hands 
of  a  bona  fide  transferee.  (Armour  v.  Mich.  C.  R.  R. 
Co.,  65  N.  Y.  Ill;  Sav.  Bank  v.  Atchison,  etc.,  R.  R. 
Co.,  20  Kan.  519.)  As  between  the  immediate  parties 
the  bill  of  lading  is  only  prima  facie  evidence  of  the 
receipt  of  the  goods.  (The  Delaware,  14  Wall.  579; 
Grace  v.  Adams,  100  Mass.  505.) 

When  the  bill  of  lading  is  attached  to  a  bill  t>f  ex- 
change for  the  purchase  money  of  the  goods,  its  trans- 
fer is  conditional  upon  the  payment  or  acceptance  of 
the  bill  according  to  its  tenor.  (Marine  Bank  v. 
Wright,  48  N.  Y.  1.)  If  such  bill  of  exchange  is  paya- 
ble on  demand,  it  cannot  be  surrendered  by  the  holder 


under  the  influence  of  commercial  custom,  a  symbol  of  property 
and  passes  title  to  the  goods  by  delivery  in  the  same  manner  as 
if  the  goods  were  themselves  delivered."    Id. 


MONEY,    BONDS,    ETC.  155 

until  the  vendee  has  accepted  and  paid  it,  unless  the 
vendee  has  a  right  to  the  goods  without  payment. 
(Bank  v.  Bayley,  115  Mass.  228;  Heiskell  v.  Farmers', 
etc.,  Bank,  89  Pa.  St.  155.)  Where  the  bill  of  exchange 
is  payable  at  a  future  time,  and  in  the  absence  of  an 
agreement  to  the  contrary,  the  bill  of  lading  may  be 
surrendered  to  the  vendee  upon  his  accepting  the  bill 
of  exchange,  and  the  vendee  may  make  its  surrender 
the  condition  of  his  acceptance.  (Tiedeman,  Com. 
Pap.,  Sec.  496;  National  Bank  v.  Merchants'  Bank,  91 
U.  S.  93.) 

Sec.  865.  CERTIFICATES  OF  STOCK  AS 
QUASI-NEGOTIABLE  INSTRUMENTS.— Cer- 
tificates of  stock  are  regarded  as  quasi-negotiable  in- 
struments, since  they  are  intended  for  transfer,  and  to 
some  extent  the  transferee  gets  a  better  title  than  his 
transferor  had.  Though  some  of  the  rights  of  a  bona 
fide  purchaser  of  stock  arise  rather  from  the  principles 
of  agency  than  those  of  negotiability.  The  delivery 
of  the  stock  is  not  necessary  to  the  transfer,  but  the 
certificate  is  regarded  as  a  muniment  of  title  and  the 
holder,  if  an  innocent  purchaser,  will  take  a  superior 
title  to  a  prior  purchaser  by  agreement,  though  the 
transfer  to  the  first  purchaser  has  been  made  on  the 
books  of  the  corporation.  (Driscoll  v.  Bradley,  etc., 
Co.,  59  N.  Y.  96;  Bank  v.  Lanier,  11  Wall.  369.) 
But  the  full  rights  of  a  bona  fide  holder  are  not  ac- 
corded to  the  transferee  of  stock,  and  the  real  owner 
may  recover  lost,  stolen,  or  otherwise  unlawfully  trans- 
ferred stock,  though  in  the  hands  of  an  iimocent  pur- 


156  NEGOTIABLE    INSTRUMENTS. 

chaser.     (Railroad  v.  Howard,  7  Wall.  415;  Burton's 
Appeal,  93  Pa.  St.  214.) 

Sec.   866.       WAREHOUSE     RECEIPTS     AS 
QUASI-NEGOTIABLE   PAPER.— Warehouse  or 

elevator  receipts  for  a  stated  amount  of  grain  of  a  cer- 
tain kind  or  quality  are  issued  by  the  public  warehouse- 
men for  grain  stored  with  them,  to  be  delivered  to  the 
depositor  or  his  order  on  demand.  These  receipts,  like 
bills  of  lading,  represent  the  grain  itself,  and  their  sale 
or  transfer  operates  a  sale  or  transfer  of  the  grain. 
By  statute  in  some  States,  and  also  by  custom  these 
receipts  have  come  to  possess  some  of  the  qualities  of 
negotiable  instruments.  But  in  the  absence  of  statute 
they  are  denied  to  be  negotiable  instruments,  since  they 
call  for  the  delivery  of  goods  and  not  the  payment  of 
money.  (2d  Natl.  Bank  v.  Walbridge,  19  O.  St.  419; 
Canadian  Bank  v.  McCrea,  40  111.  281.)  The  receipt 
will  not  assist  the  bona  fide  holder  to  recover  from  the 
warehouseman,  in  case  his  agent  issued  it  without  get- 
ting the  grain.  (Burton  v.  Curyea,  40  111.  320.)  And 
the  warehouseman  is  not  charged  with  the  liability  of  a 
guarantor  where  the  receipts  are  by  statute  made  nego- 
tiable. (Hale  v.  Milwaukee  Dock  Co.,  29  Wis.  492.) 
Sec.  867.  LETTERS  OF  CREDIT  AND  CIR- 
CULAR NOTES.— A  letter  of  credit  is  a  written 
statement  addressed  to  an  individual  or  to  any  one  to 
whom  it  may  be  delivered,  to  the  effect  that  the  writer 
is  prepared  to  meet  drafts  drawn  on  him  by  the  person 
named  in  the  letter  to  a  stated  amount.  When  drawn 
to  an  individual  it  is  called  a  special  letter  of  credit, 


MONEY,    BONDS,    ETC.  157 

and  when  not  addressed  to  an  individual  it  is  called  a 
general  letter  of  credit,  and  will  bind  the  writer  to  any 
one  who  advances  money  as  directed  by  it.  Where  the 
letter  of  credit  directs  the  drawing  of  a  bill  of  exchange 
on  the  writer,  it  is  deemed  an  acceptance  of  the  bill 
when  drawn.  (Agra  v.  Masterman's  Bank,  2  L.  It.  Ch. 
App.  297;  Bissell  v.  Lewis,  4  Mich.  450.) 

A  circular  note  is  a  form  of  a  special  letter  of  credit 
authorizing  any  one  of  a  list  of  banks  or  bankers  in 
various  places,  to  advance  money  on  drafts  drawn  by 
the  person  named  and  to  look  to  the  writer  for 
indemnity. 


PART  II. 

THE    LAW    OF    SURETYSHIP    AND 
GUARANTY. 


CHAPTER  I. 

THE  CONTRACT  DEFINED  AND  EXPLAINED. 

Sec.  868.  SURETYSHIP  AND  GUARANTY 
DEFINED  AND  DISTINGUISHED.— Surety- 
ship is  a  contract  by  which  one  person  obligates  himself 
to  be  responsible  for  the  debt,  default  or  miscarriage 
of  another.  The  person  thus  obligating  himself  is  called 
a  "surety,"  and  the  person  for  whom  he  engages  is  the 
primary  or  principal  debtor,  and  sometimes  called  sim- 
ply "principal."  The  term  suretyship  further  denotes 
the  relation  in  which  the  surety  stands  towards  the 
primary  debtor  and  the  creditor  whose  claim  he  assures.* 


*"A  surety  is  defined  as  a  person  who,  being  liable  to  pay  a 
debt  or  perform  an  obligation,  is  entitled,  if  it  is  enforced  against 
him,  to  be  indemnified  by  some  other  person,  who  ought  himself 
to  have  made  payment  or  performed  before  the  surety  was  com- 
pelled to  do  so."     (Smith  v.  Sheldon,  35  Mich.  42.) 

"The  contract  of  suretyship  has  been  defined  to  be  a  contract 
whereby  one  person  engages  to  be  answerable  for  the  debt,  de- 
fault or  miscarriage  of  another.  It  is  an  obligation  acces- 
sorial to  that  of  the  principal  debtor;   the  debt  is  due  from  the 

159 


160      SURETYSHIP  AND  GUARANTY. 

A  contract  of  guaranty  is  likewise  a  contract  to 
answer  for  the  debt,  default  or  obligation  of  another; 
the  "guarantor"  being  the  one  thus  engaging,  while 
the  creditor  to  whom  he  makes  the  promise  is  styled 
the  "guarantee,"  and  the  party  for  whom  the  guarantor 
engages  is  still  the  principal  or  primary  debtor.* 

While  the  terms  guaranty  and  suretyship  are  fre- 
quently used  synonymously,  and  the  definitions  show 
slight  difference  if  any,  yet  they  are  distinguishable  by 
important  differences.  Thus  in  McMillan  v.  Bull's 
Head  Bank,  32  Ind.  11,  it  is  said:  "The  surety  is  bound 
with  his  principal  as  an  original  promisor;  he  is  a  debtor 
from  the  beginning  and  must  see  that  the  debt  is  paid, 
and  is  held  ordinarily  to  know  every  default  of  his  prin- 
cipal, and  cannot  protect  himself  by  the  mere  indulgence 
of  the  creditor,  nor  by  want  of  notice  of  the  default  of 
the  principal,  however  such  indulgence  or  want  of  no- 
tice may  in  fact  injure  him.  On  the  other  hand,  the 
contract  of  a  guarantor  is  his  own  separate  contract; 


principal,  and  the  surety  is  merely  a  guarantor  for  its  payment. 
Hence  it  is  of  the  essence  of  the  contract  that  there  should  be  a 
valid  obligation  of  the  principal  debtor;  also,  that  the  surety 
may,  in  general,  avail  himself  of  any  defence  which  his  prin- 
cipal could  make,  while  a  defence  which  the  principal  has  pre- 
cluded himself  from  making,  or  has  waived,  cannot  be  made  by 
the  surety."     (Evans  v.  Kneeland,  9  Ala.  42.) 

*The  words  "guaranty"  and  "warranty"  are  derived  from 
the  French  verb  garantir,  meaning  to  undertake,  vouch  for, 
secure,  or  indemnify.  The  verb  in  English  is  spelled  both 
"guaranty"  and  "guarantee."  See  Abbott's  Law  Diet.  "Guar- 
antee." 


THE    CONTRACT    DEFINED.  161 

it  is  in  the  nature  of  a  warranty  by  him  that  the  thing 
guaranteed  to  be  done  by  the  principal  shall  be  done, — 
not  merely  an  engagement  jointly  with  the  principal 
to  do  the  thing.  The  original  contract  of  the  principal 
is  not  his  contract,  and  he  is  not  bound  to  take  notice 
of  its  non-performance;  therefore  the  creditor  should 
give  him  notice;  and  it  is  universally  held,  that  if  the 
guarantor  can  prove  that  he  has  suffered  damage  by  the 
failure  to  give  such  notice,  he  will  be  discharged  to  the 
extent  of  the  damage  thus  sustained.  It  is  not  so  with 
a  surety."* 


*La  Rose,  et  al  v.  Logansport  Bank,  102  Ind.  332;  Reigert 
v.  White,  52  Pa.  St.  438;  Harris  v.  Newell,  42  Wis.  687; 
Brandt,  Sur.  &  Guar.,  Sec.  1. 

"A  surety  undertakes  to  pay  if  the  debtor  does  not,  and,  in 
general,  a  guarantor  undertakes  to  pay  if  the  debtor  cannot." 
(Swan's  Treatise,  p.  567.) 

"The  surety  is  the  guarantor  of  the  payment  of  the  face  value 
of  the  note,  who  assumes  this  liability  by  becoming  a  regular 
party  to  the  paper,  as  drawer  or  indorser,  but  usually  as  co- 
maker of  a  promissory  note.  Where  the  surety  is  co-maker, 
the  obligation  to  pay  becomes  his  own  immediately  upon  fail- 
ure of  the  principal  to  pay,  without  any  previous  demand  on 
the  principal  or  notice  of  his  default.  .  .  .  The  guarantor 
is  never  a  regular  party  to  the  commercial  instrument,  and  his 
liability  depends  upon  an  independent,  collateral  agreement, 
which  provides  for  the  payment  of  the  debt  by  the  guarantor 
in  case  the  primary  debtor  fails  to  pay."  (Ticdeman,  Com. 
Paper,  Sec.  415;  citing,  Axents  v.  Com.,  18  Gratt.  770;  Jones 
v.  Ashford,  70  N.  C.  176,  etc.) 

"The  rules  of  the  common  law  as  to  sureties  are  not  strictly 
applied  to  guarantors,  but  rather  the  rules  of  the  law  merchant, 
and  the  time  distinction  seems  to  be  this:     That  a  surety  is  in 


162      SURETYSHIP  AND  GUARANTY. 

Sec.  869.  GENERAL  REQUISITES  OF  THE 
CONTRACT,  HISTORY  AND  AUTHORITIES. 

— In  general,  to  constitute  the  contract  of  suretyship 
or  guaranty  the  same  essentials  are  necessary  as  in  any 
simple  contract;  thus  the  parties  should  be  competent 
to  contract,  their  minds  should  meet  in  agreement,  and 
the  contract  should  be  upon  sufficient  consideration  un- 
less made  under  seal.  (Brandt,  Sur.  &  Guar.,  Sec.  3; 
Snyder  v.  Click,  112  Ind.  293.)  To  satisfy  the  statute 
of  frauds  the  contract  must  also  be  in  writing.  (In- 
gersoll  v.  Baker,  41  Mich.  48.) 

The  contract  of  guaranty  or  suretyship  extends  back 
to  the  remotest  times;  the  Bible  mentions  the  fact  that 
sureties  were  held  to  their  obligations  among  the  He- 
brews.* Among  the  authorities  and  writers  on  the  law 
of  suretyship  and  guaranty,  may  be  mentioned  almost 
every  writer  on  Negotiable  Instruments  or  Commercial 
Paper,  as  the  two  subjects  are  usually  treated  in  con- 
nection. Fell,  Baylies,  Brandt,  and  De  Colyer  are 
writers  of  separate  treatises  on  the  subjects  of  Guar- 
anty and  Suretyship. 


the  first  instance  answerable  for  the  debt  for  which  he  makes 
himself  responsible,  and  his  contracts  are  often  specialties,  while 
a  guarantor  is  only  liable  when  default  is  made  by  the  party 
whose  undertaking  is  guaranteed,  and  his  agreement  is  one  of 
simple  contract."  (Hubbard,  J.,  in  Curtis  v.  Dennis,  7  Mete. 
510.) 

*"He  that  is  surety  for  a  stranger  shall  smart  for  it,  and  lift 
that  hateth  suretyship  is  sure." — Proverbs  XI,  15. 


THE    CONTRACT    DEFINED.  163 

Sec.  870.  WHO  MAY  BECOME  A  SURETY 
OR  GUARANTOR. — In  addition  to  natural  persons 
of  the  requisite  capacity,  surety  companies,  or  corpora- 
tions authorized  by  statute  to  guaranty  bonds  and  un- 
dertakings or  the  fidelity  of  officers  in  positions  of  pub- 
lic or  private  trust,  may  become  sureties  or  guarantors. 
(Cramer  v.  Tittle,  72  Cal.  12;  Hurd  v.  Hannibal,  etc., 
R.  R.  Co.,  33  Hun  109.) 

And  individuals  becoming  guarantors  or  sureties  con- 
trary to  a  statute  or  rule  of  court  will  be  bound  by  their 
obligations.  Thus  an  attorney  would  be  bound  by  his 
contract  though  the  statute  or  rule  of  court  forbade  at- 
torneys from  becoming  sureties.  (Tessier  v.  Crowley, 
17  Neb.  207;  Kohn  Bros.  v.  Washer,  69  Tex.  67.)  And 
a  non-resident  accepted  as  bail  contrary  to  the  statute 
was  held  bound  by  his  contract.  (Com.  v.  Ramsay,  2 
Duvall,  Ky.,  386.) 

Married  women  cannot  become  sureties  for  their  hus- 
bands or  strangers  in  the  absence  of  enabling  statutes, 
and  in  general  a  married  woman  cannot  charge  her  sep- 
arate equitable  estate  by  becoming  a  surety.  (Yale  v. 
Dederer,  18  N.  Y.  265;  Curtan  v.  David,  18  Nev.  310.) 
But  where  the  enabling  statute  allows  her  to  contract 
as  a  feme  sole,  or  for  any  lawful  purpose,  she  may  be- 
come a  surety.  (Mayo  v.  Hutchinson,  57  Me.  546;  Low 
v.  Anderson,  41  la.  476.)  In  a  few  States  statutes  have 
been  passed  providing  that  a  married  woman  cannot 
bind  her  estate  by  a  contract  of  suretyship.  (Nixon  v. 
Whitely,  102  Ind.  360;  Beatie  v.  Calhoun,  73  Ga.  269; 
Sweazy  v.  Kammer,  51  la.  642.) 


164      SURETYSHIP  AND  GUARANTY. 

Sec.  871.  THE  CONSIDERATION  FOR  THE 
PROMISE  OF  THE  SURETY  OR  GUAR- 
ANTOR.— Except  when  under  seal,  the  contract 'of 
the  surety  or  guarantor  must  be  supported  by  a  suffi- 
cient consideration,  and  this  is  determined  by  the  same 
principles  as  govern  in  the  case  of  the  ordinary  contract. 
The  smallness  of  the  amount  of  the  consideration  does 
not  matter,  so  long  as  it  is  not  such  a  consideration  as 
would  be  opposed  to  public  policy.  (Davis  v.  Wells, 
104  U.  S.  159;  Rouse  v.  Glissman,  29  111.  App.  321.) 

"When  the  guaranty  is  contemporaneous  with  the 
creation  of  the  original  liability,  the  same  consideration 
will  support  the  guaranty  which  supports  the  principal 
contract.  In  such  a  case  the  credit  is  given  to  both,  and 
not  to  one  alone,  although  only  one  may  derive  any 
substantial  benefit  from  the  transaction.*  But  where 
the  guaranty  is  given  after  the  principal  contract  is 
made,  the  guaranty  must  be  supported  by  a  new  and 
independent  consideration,  unless  it  was  given  subse- 
quently, in  pursuance  of  a  contemporaneous  agreement 
to  that  effect." 


*Drapcr  v.  Snow,  20  N.  Y.  331;  Campbell  v.  Knapp,  15 
Pa.  St.  27.  "It  is  not  necessary  to  the  validity  of  the  consider- 
ation that  any  portion  of  it  should  move  from  the  creditor  to 
the  surety  or  guarantor,  provided  that  the  circumstances  are 
such  that  a  previous  request  on  the  part  of  the  surety  or  guar- 
antor is  held  to  exist.  A  consideration  moving  to  the  principal 
alone  contemporaneous  with  or  subsequent  to  the  promise  of 
the  surety  or  guarantor  is  sufficient."  (Brandt,  Sur.  &  Guar., 
Sec.  15;  Savage  v.  Fox,  60  N.  H.  17;  Bicksford  v.  Gibbs,  8 
Cush.  154.) 


THE    CONTRACT    DEFINED.  165 

Thus  where  the  promise  that  a  surety  or  guarantor 
will  become  liable  is  given  as  an  inducement  to  the 
creditor  to  extend  credit  to  the  principal,  this  is  a 
sufficient  consideration  to  support  the  contract  of  the 
surety  or  guarantor  who  subsequently  signs.  (Paul 
v.  Stackhouse,  38  Pa.  St.  302;  Standley  v.  Miles,  36 
Miss.  434.)* 

A  promise  for  a  promise  will  be  a  sufficient  considera- 
tion to  support  the  contract  of  the  guarantor  or  surety, 
as  where  the  creditor  agrees  to  extend  the  time  of  pay- 
ment and  the  guarantor  or  surety  thereupon  agrees  to 
be  answerable  for  the  debt.  (Fuller  v.  Scott,  8  Kan. 
25;  Lee  v.  Wisner,  38  Mich.  82.) 

But  an  executed  consideration  to  the  principal,  that 
is,  where  the  consideration  is  founded  on  something  al- 
ready done  and  passed,  as  on  account  of  further  time 
already  given  to  the  principal,  such  by-gone  considera- 
tion is  not  sufficient  to  support  the  promise  of  the  guar- 
antor or  surety,  and  the  contract  will  be  void,  except 
where  there  was  a  previous  request  by  the  surety  or 
guarantor  to  the  creditor   (Williams  v.  Marshall,  42 


*"If  A  executes  his  note  to  B,  and  X,  at  the  time  the  note 
is  made,  indorses  his  name  on  the  back  of  it,  he  thereby  be- 
comes surety  for  A,  the  same  as  if  he  signed  his  name  to  the 
note  with  A,  in  the  absence  of  an  agreement  in  regard  to  the 
extent  of  the  responsibility  of  X ;  and  consequently  there  is  a 
sufficient  consideration  for  his  promise.  But  if  A  executes  his 
note  to  B,  and  X,  having  no  concern  with  the  note  at  the  time 
that  it  is  made,  afterwards  indorses  his  name  on  the  back  of  it, 
he  is  not  liable  unless  there  was  sufficient  consideration  therefor." 
(Swan's  Treatise,  p.  572.) 


166      SURETYSHIP  AND  GUARANTY. 

Barb.  524;  Ludwick  v.  Watson,  3  Ore.  256;  Ashton  v. 
Bayard,  71  Pa.  St.  130.)  If  the  written  promise  of  the 
surety  to  answer  for  the  debt  of  another,  be  made  in 
consideration  of  something  to  be  done,  as  in  considera- 
tion of  goods  to  be  supplied,  legal  proceedings  to  be 
staid,  and  the  like,  the  consideration  is  sufficient.  (West- 
head  v.  Sproson,  6  II.  &  X.  728.)* 

Sec.  872.  150XD  GIVEN  WHEN  NOT  RE- 
QUIRED, OR  IN  DIFFERENT  FORM  RINDS 
SURETY. — A  voluntary  bond,  or  one  given  when 
none  is  required  by  law,  or  in  a  different  form  from 
the  one  required  binds  the  surety.  Thus,  the  bond  of 
a  plaintiff  in  an  attachment  suit  though  not  required 
binds  the  sureties  and  is  valid.  (Lartigue  v.  Baldwin, 
5  Martin,  La.,  193.)  And  the  sureties  upon  the  bond 
of  a  State  treasurer,  and  a  deputy  collector  of  customs, 
where  the  bond  was  voluntarily  given  and  not  demand- 
able  by  law  were  nevertheless  held  bound  by  their  obli- 
gation. (Sooy  ads.  the  State,  38  N.  J.  L.  324;  Dignan 
v.  Shields,  51  Tex.  322.)     And  where  a  bond  was  re- 


*See  Brandt  on  Sur.  &  Guar.,  Sec.  16.  In  Jackson  v.  Jack- 
son, 7  Ala.  791,  Collier,  C.  J.,  said:  "Any  act  in  the  nature 
of  a  benefit  to  the  person  who  promises,  or  to  any  other  person 
upon  his  request,  or  any  act  which  is  a  trouble  or  detriment  to 
him  to  whom  the  promise  is  made,  is  sufficient,  and  the  amount 
of  benefit  or  of  trouble  or  of  detriment  or  its  comparative  value 
in  relation  to  the  promise  is  indifferent."  And  the  consideration 
need  not  be  a  benefit  to  the  principal  or  surety,  any  trouble, 
detriment,  or  inconvenience  to  the  creditor  is  sufficient.  (Pillans 
v.  Van  Mierop,  3  Burr.  1663;  Wells  v.  Mann,  45  N.  Y.  327.) 


THE    CONTRACT    DEFINED.  167 

quired  of  bank  cashier  with  two  or  more  sureties,  and 
the  bond  was  given  with  but  one  surety,  the  single  surety 
was  held  liable  on  the  bond.  (Pritchett  v.  the  People, 
1  Gilman,  111.,  525 ;  Bank  of  Brighton  v.  Smith,  5  Allen 
413.) 

Sec.  873.  SURETY  MAY  BE  BOUND 
THOUGH  NAME  NOT  IN  BODY  OF  WRIT- 
ING, AND  HIS  OBLIGATION  MAY  ARISE 
BY  IMPLICATION.— Where  the  intention  is  clear 
from  the  writing  and  signature  who  is  the  surety,  it  is 
not  necessary  that  the  name  of  the  surety  appear  in 
the  body  of  the  instrument.  So  where  a  blank  is  left 
intended  for  the  name  of  the  surety,  and  the  instrument 
is  signed,  sealed  and  delivered,  the  signer  is  bound. 
(Bartley  v.  Yates,  2  Hen.  &  Mun.,  Va.,  398;  Partridge 
v.  Jones,  38  O.  St.  375.)  But  it  is  held  where  the  pen- 
alty of  the  bond  is  left  blank,  the  sureties  are  not  bound. 
(Austin  v.  Richardson,  1  Gratt.  310.) 

The  obligation  of  a  surety  or  guarantor  is  sometimes 
implied  by  law  from  the  circumstances  surrounding  a 
person  who  sells  or  transfers  a  negotiable  instrument, 
in  the  same  manner  as  a  warranty  is  implied  in  the  case 
of  the  sale  of  goods.  Thus  in  the  transfer  of  a  promis- 
sory note  by  endorsement  without  recourse,  the  trans- 
feree impliedly  guaranties  the  genuineness  of  prior  sig- 
natures, and  this  is  so  as  regards  the  party  selling  such 
a  note  without  indorsing  it.  (Dumont  v.  Williamson, 
18  O.  St.  515;  Lyons  v.  Miller,  6  Gratt.  427;  Cabot 
Bank  v.  Morton,  4  Gray  156.) 


168  SURETYSHIP    AND    GUARANTY. 

Sec.  874.  WHEN  JOINT  MAKER  OF  NOTE 
MAY  BE  SHOWN  TO  BE  A  SURETYr  BYr 
PAROL  EVIDENCE.— Where  several  parties  sign 
a  joint,  or  joint  and  several  note,  not  under  seal,  if 
one  or  more  of  them  are  sureties,  and  the  creditor  is 
cognizant  of  the  Pact,  parol  evidence  is  admissible  to 
show  that  they  were  sureties  and  that  the  creditor  had 
knowledge  of  their  signing  as  such,  and  this  is  true 
though  there  is  nothing  in  the  note  to  indicate  that  any 
of  the  parties  are  sureties.  Such  parties  are  sureties 
to  all  intents  and  purposes,  and  the  creditor  must  deal 
with  them  as  regards  protecting  their  rights  as  in  the 
case  of  any  other  surety.  Any  act  by  the  creditor  which 
would  discharge  a  surety  will  discharge  them.  (Sefton 
v.  Hargett,  113  Ind.  592;  Piper  v.  Newcomer,  25  la. 
221;  Higdon  v.  Bailey,  26  Ga.  426.)  The  apparent 
change  in  the  terms  of  the  contract  made  by  the  intro- 
duction of  such  parol  evidence  is  held  to  be  but  the  proof 
of  a  collateral  fact  and  not  a  controverting  of  the  terms 
of  the  contract.  (Rose  v.  Williams,  5  Kan.  438;  Car- 
penter v.  King,  9  Met.  511.) 

By  a  number  of  cases  it  is  held  that  a  joint  maker 
of  a  sealed  note  may  show  that  he  was  in  fact  a  surety 
and  that  the  creditor  had  notice  of  the  fact.  (Creigh 
v.  Hedrick,  5  W.  Va.  140;  Forbes  v.  Shepard,  98  N.  C. 
111.)  Other  cases  deny  that  parol  evidence  may  be 
introduced  for  this  purpose  when  the  instrument  is  under 
seal,  in  actions  at  law,  but  admit  such  evidence  in  courts 
of  equity.  (Burke  v.  Crugcr,  8  Tex.  66;  Levy  v. 
Hampton,  1  McCord,  L.  [S.  C],  145.) 


THE    CONTRACT    DEFINED.  169 

And,  in  general,  where  the  creditor  at  the  time  of 
doing  an  act  which  will  discharge  an  ordinary  surety, 
has  knowledge  that  a  party  is  in  reality  a  surety,  this 
will  discharge  such  party,  though  the  creditor  did  not 
know  beforehand  that  such  party  was  in  fact  a  surety. 
Thus  where  the  holder  of  an  instrument  did  not  know 
that  one  of  the  parties  was  a  surety  at  the  time  of  taking 
it,  but  was  afterwards, — and  before  doing  the  act  oper- 
ating as  a  discharge  of  the  surety, — informed  of  it; 
held,  that  the  surety  was  discharged.  (Bank  of  Mo.  v. 
Matson,  26  Mo.  243;  Pooley  v.  Harradine,  7  E.  &  B. 
431.) 

Parol  evidence  is  also  admissible  to  charge  a  party 
who  had  added  the  word  "surety"  or  the  like  to  his  signa- 
ture to  a  promissory  note  as  a  principal.  Such  addition 
to  a  signature  is  held  to  be  simply  presumptive  evidence 
of  suretyship,  and  may  be  rebutted  by  proof  of  the  fact. 
(Rose  v.  Madden,  1  Kan.  445;  Boulware  v.  Admrs., 
83  Va.  679.) 

But  where  a  surety  in  terms  binds  himself  as  a  princi- 
pal by  adding  the  word  "principal"  after  his  name,  he 
cannot  by  parol  evidence  show  that  he  was  in  reality  a 
surety.  Thus  where  three  persons  signed  a  note,  joint 
and  several,  and  one  added  "principal"  to  his  signature 
and  the  other  two  adding  "surety"  to  theirs,  it  was  held 
that  the  party  using  the  word  principal  could  not  show 
by  parol  evidence  that  he  was  a  surety  and  known  as 
such  by  the  creditor.  The  addition  of  such  word  indi- 
cates  a   waiver   of   his   rights   as   surety.      (Picot  v. 


170      SURETYSHIP  AND  GUARANTY. 

Signiago,  22  Mo.  587;  Deny  Bank  v.  Baldwin,  41  N. 
H.  434.) 

See.  875.  WHEN  SURETY  ESTOPPED  TO 
DENY  RECITALS  OF  FACTS  IN  WRITTEN 
OBLIGATION.— "The  general  rule  is  that  sureties 
are  estopped  to  deny  the  facts  recited  in  the  obligations 
signed  by  them,  and  this  whether  the  recitals  are  true 
or  false  in  fact.  Having  once  solemnly  alleged  the  ex- 
istence of  the  facts  they  cannot  afterwards  be  heard  to 
deny  it."* 

Likewise  sureties  on  notes  or  bonds  executed  to  a 
corporation  or  partnership  are  estopped  from  denying 
the  legal  existence  of  such  corporation  or  partnership. 
(Jackson  v.  Foote,  12  Fed.  Rep.  37.)  And  a  surety 
on  a  bond  is  held  estopped  from  denying  liability  be- 
cause the  bond  is  different  from  what  he  thought  it  was, 
wrhere  he  wras  not  prevented  from  reading  the  same  by 
the  fraud  of  the  obligee.  (Johnston  et  at.  v.  Patterson, 
114  Pa.  St.  398.) 

But  in  some  cases  the  surety  is  not  estopped  from 


*  Brandt,  Sur.  &  Guar.,  Sec.  42;  Montcith  v.  Commonwealth, 
15  Gratt.  172;  Decker  v.  Judson,  16  N.  Y.  439.  Where  the 
holder  of  the  bond  of  a  corporation  guaranteed  it,  and  after- 
wards in  a  suit  against  him  on  the  guaranty  he  attempted  to 
set  up  the  fact  that  the  corporation  had  no  authority  to  make  it 
and  it  was  invalid,  he  was  held  to  be  estopped  from  showing 
these  facts,  the  court  saying:  "The  guaranty  of  the  payment 
of  the  bond  by  the  defendant  imports  an  agreement  or  under- 
taking that  the  makers  of  the  bond  were  competent  to  contract 
in  the  manner  they  have,  and  that  the  instrument  is  a  binding 
obligation  upon  the  makers." 


THE    CONTRACT    DEFINED.  171 

denying  the  facts  stated  in  his  obligation.  Thus  in  a 
suit  upon  a  township  bond,  which  recited  that  the  of- 
ficers executing  it  had  been  authorized  so  to  do,  the 
township  was  not  estopped  from  showing  that  no  such 
authority  had  been  given.  ( Hudson  v.  Inhab.  of  Wins- 
low,  6  Vroom.  [N.  J.]  437.)  So  where  the  bond  of  an 
officer  is  sued  upon,  the  surety  is  not  estopped  from 
setting  up  the  fact  that  the  appointment  of  the  officer 
was  void  or  illegal.  (Thomas  v.  Burrus,  23  Miss.  550; 
Tinsley  v.  Kirby,  17  S.  C.  1.)* 

Sec.  876.  NEGOTIABILITY  OF  GUARAN- 
TIES DISCUSSED.— While  a  person  who  holds  the 
guaranty  of  another  may  assign  the  right  of  action  on 
the  guaranty  by  express  words  so  that  the  transferee 
may  thereafter  enforce  the  guaranty  either  in  the  name 
of  the  assignor  or  his  own  name,  there  is  a  conflict  of 
authorities  in  regard  to  the  guaranty  of  a  negotiable  in- 
strument passing  to  the  subsequent  indorsee  or  holder 
when  the  paper  which  the  guaranty  covers  has  been 
transferred  to  such  indorsee  or  holder.    Professor  Tiede- 


*In  Miller  v.  Bagwell,  3  McCord,  Law,  S.  C,  429,  Nott,  J., 
states  the  reasons  for  allowing  the  recitals  to  be  controverted 
as  follows :  "It  is  a  general  rule  of  law,  and  a  correct  one,  too, 
that  a  man  cannot  aver  against  his  own  deed;  but  that  is  where 
he  has  alleged  some  particular  fact  within  his  own  knowledge 
and  which  forms  a  part  of  the  consideration  for  his  undertak- 
ing; and  that  is  the  whole  extent  to  which  the  cases  relied  on 
go.  But  the  principle  cannot  be  extended  to  an  allegation  com- 
ing from  the  other  party,  and  which  can  be  necessarily  known 
only  to  him,  although  contained  in  the  recital  of  a  deed  made 
by  the  defendant." 


172  SURETYSHIP    AND    GUARANTY. 

man  states  that  the  authorities  generally  agree  that  when 
the  guaranty  is  written  on  a  separate  paper  it  will  not 
be  negotiable  so  far  as  to  pass  as  appurtenant  to  the 
bill  or  note  to  a  subsequent  holder,  unless  words  of  ne- 
gotiability are  incorporated  in  the  guaranty.  (Com. 
Pap.,  Sec.  419.)  So  that  a  guaranty  written  on  a  sep- 
arate paper  and  not  in  terms  negotiable,  could  not  be 
sued  on  by  the  holder  to  whom  the  original  paper  had 
been  transferred,  but  a  suit  might  be  brought  on  it  in 
the  name  of  a  person  to  whom  it  was  first  given.  (Mc- 
Laren v.  Watson's  Admrs.,  2G  Wend.  425;  contra, 
Gould  v.  Ellery,  39  Barb.  163.)  Where  the  guaranty 
is  written  on  the  negotiable  instrument  which  it  guaran- 
tees contemporaneously  with  its  execution,  the  authori- 
ties are  divided ;  in  a  number  of  cases  it  is  held  negotiable 
and  in  others  not  negotiable.* 

And  where  the  guaranty  is  written  on  the  paper  at 
the  time  of  its  transfer  by  the  transferor,  the  question  of 
its  negotiability  is  in  dispute.!  In  Potter  v.  Gronbeck, 
117  111.  404,  it  is  held  that  a  guaranty  covering  the  pay- 


*The  following  cases  hold  the  guaranty  negotiable:  Cole 
v.  Merchants'  Bank,  GO  Ind.  350;  Webster  v.  Cobb,  17  111.  466; 
Northumberland  Bank  v.  Eyer,  58  Pa.  St.  97;  Jones  v.  Dow, 
142  Mass.  130.  Contra  eases  are:  Springer  v.  Hutchinson,  19 
Me.  359;  Tinker  v.  McCauley,  3  Mich.  188;  Smith  v.  Dickin- 
son, 6  Humph.  [Tenn.]  261. 

f  Johnson  v.  Mitchell,  50  Tex.  212;  Robinson  v.  Lain,  31 
la.  9 ;  Gage  v.  Mechanics'  Bank,  79  111.  62,  arc  cases  holding 
such  guaranties  negotiable,  while  Trust  Co.  v.  Natl.  Bank,  101 
U.  S.  70 ;  Taylor  v.  Binney,  7  Mass.  481 ;  Miller  v.  Gaston,  2 
Hill.  188,  hold  the  contrary. 


THE    CONTRACT    DEFINED.  173 

ment  of  rent  and  other  covenants  on  the  part  of  a  lessee 
could  not  be  assigned  so  as  to  pass  a  legal  title  to  the 
assignee. 

Sec.  877.  WHEN  OFFER  OF  GUARANTY 
MUST  BE  ACCEPTED.— An  offer  of  suretyship 
or  guaranty  must  be  accepted  the  same  as  any  other 
offer  if  the  party  offering  is  to  be  bound.  Where  the 
partie.s  deal  together  personally,  or  a  single  specific  lia- 
bility is  guarantied,  formal  notice  of  acceptance  by  the 
creditor  is  unnecessary.  (Walker  v.  Forbes,  25  Ala. 
139;  Montgomery  v.  Kellogg,  43  Miss.  486.)  When 
the  guaranty  covers  a  future  and  continuing  credit,  un- 
less it  refers  specifically  to  a  certain  line  of  credit  which 
it  absolutely  guaranties,  indicating  a  previous  request 
for  a  guaranty,  it  should  be  formally  accepted  by  notice 
sent  to  the  guarantor  of  the  creditor's  intention  to  rely 
upon  the  guaranty.  (Sheurll  v.  Knox,  2  Am.  Lead. 
Cas.  104;  Babcock  v.  Bryant,  12  Pick.  133;  Davis  v. 
Wells,  Fargo  &  Co.,  104  U.  S.  159;  contra,  Powers  v. 
Bumcranz,  12  O.  St.  284.) 

And,  unless  the  guarantor  waive  notice  of  acceptance, 
it  must  be  given  to  bind  him  upon  a  general  letter  of 
credit.  (Tiedeman,  Com.  Pap.,  Sec.  420;  Russell  v. 
Clarke,  7  Cranch  69.)  This  is  to  enable  the  guarantor 
to  know  to  whom  he  is  liable. 

Sec.  878.  FORMS  AND  KINDS  OF  GUAR- 
ANTIES.— There  is  no  specific  form  required  to  con- 
stitute a  guaranty,  and  it  is  sufficient  if  it  indicates  the 
intent  of  the  party  to  assume  the  obligation.  It  may  be 
written  on  the  instrument  guaranteed,  or  be  given  in  a 


174      SURETYSHIP  AND  GUARANTY. 

separate  writing,  and  before  the  statute  of  frauds  could 
be  oral.  It  may  in  terms  be  absolute  or  conditional  upon 
some  future  event  or  contingency;  limited  or  unlimited 
as  to  the  amount,  time,  and  number  of  transactions. 
(Tiedeman,  Com.  Pap.,  Sec.  416.) 

When  a  question  arises  as  to  whether  a  guaranty 
authorizing  the  loan  of  any  amount  not  exceeding  a 
specified  sum  is  exhausted  by  a  single  advancement  or 
operates  as  a  continuing  guaranty  of  all  advances  up 
to  the  amount  stated,  the  intention  of  the  parties  will 
govern,  and  to  explain  the  ambiguous  guaranty  parol 
evidence  is  admissible.  While  there  is  no  general  rule 
by  which  to  determine  whether  the  guaranty  is  continu- 
ing or  not,  Professor  Tiedeman  states  that,  where  the 
language  used  is  singular  in  number  it  will  be  considered 
exhausted  by  the  first  loan,  while  if  the  plural  number 
is  used,  indicating  an  authority  for  repeated  loans  within 
the  amount,  it  will  be  held  to  cover  all  loans  within  the 
stipulated  amount.  (Com.  Pap.,  Sec.  416.)  Mr. 
Brandt,  in  his  excellent  work,  simply  states  that  no  defi- 
nite rule  can  be  given  for  determining  whether  a  guar- 
anty shall  be  considered  a  continuing  one  or  not,  as  the 
circumstances  are  different  in  almost  every  case,  and 
he  therefore  illustrates  the  subject  by  giving  the  facts 
of  decided  cases,  a  few  of  which  we  append  below:* 


*Brandt,  Sur.  &  Guar.,  Sec.  156.  Where  a  guaranty  read: 
"Mr.  J.  B.  Maynard,  being  about  to  commence  the  retailing 
of  dry  goods  at  Connelton,  Ind.,  and  desiring  to  open  a  credit 
with  James  Lowe  &  Co.,  of  the  city  of  Louisville,  I  hereby  un- 
dertake and  contract  with  said  Lowe  &  Co.  to  become  respon- 


THE    CONTRACT    DEFINED.  175 

Sec.  879.  LIMITATIONS  OF  SURETY'S 
CONTRACT  AS  REGARDS  TIME,  ACT  OR 
AMOUNT. — When  a  person  is  surety  for  the  honesty 
of  another  in  an  office  of  limited  duration,  to  which 


sible  to  them  for  the  amount  of  any  bill  or  bills  of  merchandise 
sold  by  them  to  said  Maynard,  agreeable  to  terms  of  sale  agreed 
upon  between  the  parties,  without  requiring  said  Lowe  &  Co. 
to  prosecute  suit  against  said  Maynard  therefor,"  it  was  held 
a  continuing  guaranty  and  not  exhausted  by  the  first  few  bills 
bought  on  commencing  the  business.  (Lowe  v.  Beckwith,  14  B. 
Monr.,  Ky.,  150.)  So  the  writing,  "I  hold  myself  accountable 
to  you  for  any  goods  Mr.  Francis  Murphy  may  purchase  of 
you  to  the  amount  of  £250,  currency,"  is  a  continuing  guar- 
anty, (Ross  v.  Burton,  4  Up.  Can.  Q.  B.  357);  and  also  the 
words,  "Sir,  you  can  let  J.  L.  Day  have  what  goods  he  calls  for, 
and  I  will  see  that  the  same  are  settled  for."  (Hotchkiss  v. 
Barnes,  34  Conn,  27.) 

But  where  the  guaranty  was  in  the  form  of  a  letter:  "The 
object  of  the  present  letter  is  to  request  you,  if  convenient,  to 
furnish  them  (the  principals  with)  any  sum  they  may  want,  so 
far  as  $50,000,  say  $50,000.  They  will  reimburse  you  the 
amount,  together  with  interest,  as  soon  as  arrangements  can 
be  made  to  do  it.  .       .     We  shall  hold  ourselves  answerable 

to  you  for  the  amount,"  it  was  held  to  be  exhausted  by  the  first 
advance  of  $50,000  and  not  a  continuing  guaranty.  (Cremer 
v.  Higginson,  1  Mason  323.)  And  a  guaranty  in  the  following 
form  was  held  not  to  be  a  continuing  guaranty :  "Sir,  for  any 
sum  that  my  son,  George  Reed,  may  become  indebted  to  you, 
not  exceeding  $200,  I  will  hold  myself  accountable."  (White 
v.  Reed,  15  Conn.  457.)  So  where  the  letter  of  guaranty  asked 
that  a  full  line  of  samples  of  goods  be  sent  for  a  stated  season, 
and  concluded,  "and  I  will  guaranty  the  payment  of  any  goods 
you  may  sell  him,"  it  was  held  to  cover  but  one  transaction  or 
sale  of  goods.  (Schwartz  v.  Hyman,  107  N.  Y.  562.)  And  a 
letter  stating  "The  bearer,      .      .      .      my  son-in-law,  wishes 


176      SURETYSHIP  AND  GUARANTY. 

he  has  been  appointed  for  a  limited  time  only,  such 
surety  is  not  bound  beyond  that  period,  though  the  of- 
ficer is  re-elected  or  re-appointed,  unless  the  guaranty, 
by  an  express  provision,  extend  the  obligation  beyond 
the  original  term.  (Thompson  v.  Young,  2  Ohio  334; 
Arlington  v.  Merricke,  2  Saund.  403;  Sidner  v.  Alex- 
ander, 31  O.  St.  378.)  The  last  case  holding  that 
moneys  received  during  the  first  term,  and  in  the  offi- 
cer's hands  when  executing  bond  for  second  term,  are 
covered  by  first  bond  and  not  by  second.  So  where  a 
surety  on  a  bond  providing  that  a  clerk  should  properly 
demean  himself,  "from  time  to  time  and  at  all  times, 
so  long  as  he  should  continue  to  hold  said  office  or 
employment,"  showed  that  the  employment  was  but 
for  a  year,  the  creditor  could  not  set  up  that  by  con- 
sent of  all  parties  the  clerk  had  been  retained  beyond 
the  year  and  had  made  default.  (Peppin  v.  Cooper,  2 
Barn  &  Aid.  431.) 

And  it  is  held  where  the  bond  of  the  surety  is  gen- 
eral covering  the  entire  period  for  which  the  principal 
shall  remain  in  office,  and  the  salary  of  the  principal 
is  increased  at  the  end  of  the  year,  such  change  of  term 
revokes  the  first  appointment  and  releases  the  surety. 
(Bamford  v.  lies,  3  Wels.  Hurl.  &  Gor.  380.)     And 


to  place  a  stock  of  groceries  in  his  provision  and  meat  store. 
To  enable  him  to  do  this,  I  am  willing  to  be  responsi- 
ble to  you  for  the  amount  of  groceries  he  may  order  of  you," 
was  held  not  to  be  a  continuing  guaranty.  (Knowlton  v.  Her- 
sey,  76  Me.  345;   Chapter  V,  Brandt  Sur.  &  Guar.) 


THE    CONTRACT    DEFINED.  177 

where  the  general  bond  of  a  cashier  of  a  bank,  was 
extended  by  the  re-chartering  of  the  bank  without  a 
new  bond,  the  sureties  were  not  held  for  a  default  by 
the  cashier  made  after  the  time  of  the  expiration  of  the 
original  charter.  (Thompson  v.  Young,  2  Ohio  335.) 
But  where  the  terms  of  the  bond  indicate  the  intention 
of  the  surety  to  be  bound  beyond  the  term  for  which 
the  officer  is  elected  or  appointed,  as  where  the  words 
were:  "during  the  whole  time  of  continuing  in  said  of- 
fice, in  consequence  of  said  election,  or  under  any  annual 
or  other  future  election  ...  to  the  said  office,"  the 
surety  will  be  bound  for  any  default  while  the  person 
remains  in  office.  (Oswald  v.  Mayor  of  Berwick,  5  H. 
L.  Cas.  56.) 

Sec.  880.  EFFECT  OF  THE  STATUTE  OF 
FRAUDS  UPON  THE  CONTRACT.— By  the 
fourth  section  of  the  Statute  of  Frauds  (29  Charles  II, 
ch.  3)  and  re-enacted  in  the  various  States  in  almost 
identical  terms,  it  is  provided:  "No  action  shall  be 
brought  whereby  to  charge  the  defendant  upon  any 
special  promise  to  answer  for  the  debt,  default  or  mis- 
carriage of  another  person,  unless  the  agreement  upon 
which  such  action  shall  be  brought,  or  some  memoran- 
dum or  note  thereof,  shall  be  in  writing  and  signed  by 
the  party  to  be  charged  therewith,  or  by  some  person 
thereunto  by  him  lawfully  authorized."  The  general 
effect  of  this  section  is  that  the  contract  of  a  surety  or 
guarantor  being  a  promise  to  answer  for  the  debt  of 
another,  must  be  in  writing  or  a  suit  cannot  be  main- 


178      SURETYSHIP  AND  GUARANTY. 

tained  upon  it.  As  this  section  of  the  Statute  of  Frauds 
has  already  been  considered  under  the  subject  of  Con- 
tracts* it  is  not  necessary  to  enter  upon  a  lengthy  dis- 
cussion of  it  here. 

As  regards  the  extent  of  the  writing  necessary  to 
satisfy  the  Statute  of  Frauds  the  rule  differs  in  the 
various  States.  In  some  a  statement  of  the  considera- 
tion is  required.  (Rigby  v.  Norwood,  34  Ala.  129; 
Nichols  v.  Allen,  23  Minn.  543.)  Others  hold  that  the 
consideration  is  no  part  of  the  "agreement"  and  need 
not  be  stated.  (Reed  v.  Evans,  17  Ohio  128;  Gillighan 
v.  Boardman,  29  Me.  79.)  So  where  the  words  of  the 
statute  only  require  the  "promise"  to  be  in  writing,  the 
consideration  need  not  appear  (Violett  v.  Patten,  5 
Cranch  142).  Where  the  consideration  is  held  to  be 
unnecessary,  the  mere  signature  of  the  guarantor  on 
the  principal  obligation  will  be  treated  as  a  sufficient 
compliance  with  the  statute,  as  where  one  not  a  party 
to  a  negotiable  instrument  puts  his  name  on  the  back 
of  it.     (Nelson  v.  Dubois,  13  Johns.  175.) 

In  order  that  the  contract  of  the  surety  or  guarantor 
come  within  the  operation  of  the  statute  as  a  promise 
to  answer  for  the  debt  or  default  of  another  it  must  be 
collateral  to  a  liability  on  the  part  of  the  principal 
debtor,  that  is,  the  principal  debtor  must  not  be  entirely 
discharged  by  the  obligation  of  the  surety.  If  at  the 
time  of  the  surety's  promise  there  is  an  actual  primary 
liability  of  a  principal  to  the  promisee  which  continues 


*Sce  Vol.  4  of  the  Cyclopedia  of  Law. 


THE    CONTRACT    DEFINED.  179 

after  the  making  of  the  promise,  the  contract  is  within 
the  statute  and  must  be  in  writing  to  be  valid.* 

Where  the  contract  of  the  surety  extinguishes  the 
first  contract,  so  that  the  first  debt  no  longer  exists,  and 
the  principal  debtor  is  not  liable  thereon,  the  contract 
of  the  surety  is  binding  though  not  in  writing.  (Esta- 
brook  v.  Gebhardt,  32  O.  St.  415;  Anderson  v.  Spence, 
72  Ind.  315;  Read  v.  Nash,  1  Wils.  305.)  And  where 
the  contract  of  the  surety  is  to  pay  his  own  debt  to  a 
person  designated  by  his  creditor,  in  discharge  of  a 
debt  owing  to  such  person  by  his  creditor,  this  agree- 
ment need  not  be  in  writing.f 

"When  the  promise  to  pay  the  debt  of  another  is 
made  in  consideration  of  the  delivery  by  the  creditor  to 
the  promisor  of  a  security  for  such  debt,  as  of  an  assign- 
ment of  the  debt  itself  to  the  promisor — that  is,  when 


*Thus  in  the  leading  case  of  Birkmyr  v.  Darnell,  2  Ld.  Ray- 
mond, 1085,  S.  C,  6  Mod.  248,  and  1  Salk.  27,  the  distinction 
between  a  collateral  and  original  promise  is  thus  illustrated: 
"If  two  come  to  a  shop  and  one  buys,  and  the  other,  to  gain 
him  credit,  promises  the  seller,  'if  he  does  not  pay  you  I  will,' 
this  is  a  collateral  undertaking,  and  void  without  writing  by 
the  Statute  of  Frauds.  But  if  he  says,  'let  him  have  the  goods, 
I  will  be  your  paymaster,'  or  'I  will  see  you  paid,'  this  is  an 
undertaking  as  for  himself,  and  he  shall  be  intended  to  be  the 
very  buyer,  and  the  other  to  act  but  as  his  servant." 

f  "If  A  be  indebted  to  B,  and  B  be  indebted  to  C,  and  they  get 
together  and  agree  that  B's  debt  to  C  shall  be  canceled,  and  A 
shall  pay  the  debt  which  he  owed  B  to  C,  such  agreement  is  valid 
and  binding  without  writing."  (Brandt,  Sur.  &  Guar.,  Sec.  66; 
Hodgson  v.  Anderson,  3  B.  &  C.  842 ;  Barker  v.  Bucklin,  2  Denio 
45.) 


180      SURETYSHIP  AND  GUARANTY. 

the  transaction  amounts  to  a  sale  by  the  creditor  to  the 
promisor  of  the  lien  or  debt — the  promise  is  not  within 
the  statute."  (Brandt,  Sur.  &  Guar.,  Sec.  65;  Castling 
v.  Aubert,  2  East  325.) 

When  there  is  a  sale  of  goods  to  one  person  and  a 
promise  to  pay  the  debt  by  another,  if  the  person  to 
whom  the  goods  are  furnished  is  at  all  liable,  the  prom- 
ise of  the  surety  must  be  in  writing  to  bind  him.  But 
where  the  goods  are  given  on  the  credit  of  a  person, 
and  at  his  request  delivered  to  another,  to  whom  no 
credit  is  given,  and  who  incurs  no  responsibility,  the 
person  to  whom  the  credit  is  given,  being  solely  respon- 
sible, the  contract  need  not  be  in  writing.  (Swan's 
Treatise,  p.  570.)  So  where  there  is  a  promise  to 
answer  for  a  party  not  legally  competent  to  contract,  or 
not  answerable  for  his  wrongful  acts,  the  promise  need 
not  be  in  writing,  as  there  is  no  collateral  liability  the 
principal  not  being  bound.  Thus  a  father  who  prom- 
ised verbally  to  answer  for  goods  supplied  by  a  mer- 
chant to  his  minor  son  was  held  bound,  because  the  son 
not  being  of  age  to  become  liable  for  the  debt,  it  was 
held  to  be  the  separate,  independent  and  original  debt 
of  the  father.  (Chapin  v.  Lapham,  20  Pick.  467;  Har- 
ris v.  Huntbach,  1  Burrows  373.) 

"The  Statute  (of  Frauds)  was  intended  to  apply  to 
promises  made  to  the  person  to  whom  the  debt  is  due, 
and  in  order  to  secure  its  payment  to  him.  There  is, 
therefore,  a  class  of  cases  that  do  not  come  within  the 
operation  of  the  statute,  because  the  promise  is  either 
to  the  person  who  owes  the  debt,  or,  though  made  to 


THE    CONTRACT    DEFINED.  181 

the  person  to  whom  the  debt  is  due,  is  not  made  to 
secure  its  payment.  Thus,  if  there  is  a  suit  by  A  against 
you,  and  B  promises  to  pay  him  $50  if  he  will  withdraw 
the  suit,  and  he  does  it,  B  is  liable  on  his  promise,  though 
not  in  writing;  for  the  promise  is  not  to  pay  your  debt, 
but  a  sum  of  money  distinct  from,  and  independent 
of  it."* 

So  where  the  promise  of  the  surety  is  to  pay  the 
debt  of  another  out  of  the  proceeds  of  such  other's  prop- 
erty in  the  hands  of  the  surety  for  the  purpose,  the 
promise  need  not  be  in  writing.  (Meyer  v.  Hartman, 
72  111.  442;  Stoudt  v.  Hine,  45  Pa.  St.  30.)  The  prom- 
ise of  the  surety  is  considered  original,  and  he  is  re- 
garded as  an  agent  to  distribute  the  property.  ( Brandt, 
Sur.  &  Guar.,  Sec.  63.)  "Where  the  plaintiff,  in  con- 
sideration of  the  promise,  has  relinquished  some  lien, 
benefit  or  advantage,  for  securing  or  recovering  his  debt, 
and  where  by  means  of  such  relinquishment  the  same 
interest  or  advantage  has  inured  to  the  benefit  of  the 
defendant,  there  his  promise  is  binding  without  writ- 
ing. ...  It  is  not  enough  that  the  plaintiff  has 
relinquished  an  advantage  or  given  up  a  lien  in  conse- 
quence of  the  defendant's  promise,  if  that  advantage  has 
not  directly  inured  to  the  benefit  of  the  defendant,  so 

*Swan's  Treatise,  p.  570 :  "A  promise,  however,  to  indemnify 
A  for  assuming  the  debt  of  B,  or  a  promise  by  A  to  B  to  indem- 
nify B  against  loss  in  becoming  surety  for  C,  is  void,  if  not  in 
writing ;  but  a  promise  by  one  co-surety,  to  indemnify  the  other, 
need  not  be  in  writing ;  for  it  is  a  promise  to  secure  one's  own  de- 
fault."  (Id.,  citing  Oldham  v.  Broom,  28  O.  St.  41.) 


182      SURETYSHIP  AND  GUARANTY. 

as  to  make  it  a  purchase  by  the  defendant  from  the 
plaintiff."  (Per  Shaw,  C.  J.,  in  Curtis  v.  Brown,  5 
Cush.  488.) 

"Whenever  the  main  purpose  and  object  of  the  prom- 
isor is  not  to  answer  for  another,  but  to  subserve  some 
pecuniary  or  business  purpose  of  his  own,  involving 
either  a  benefit  to  himself  or  damage  to  the  other  con- 
tracting party,  his  promise  is  not  within  the  statute,  al- 
though it  may  be  in  form  a  promise  to  pay  the  debt  of 
another,  and  although  the  performance  of  it  may  inci- 
dentally have  the  effect  of  extinguishing  that  liability." 
(Per  Clifford,  J.,  in  Emerson  v.  Slater,  22  How.  28.) 

Sec.  881.  SAME  SUBJECT— EFFECT  WHEN 
THE  CONTRACT  IS  WITHIN  THE  STAT- 
UTE AND  NOT  IN  WRITING.— The  words  of  the 
Statute  of  Frauds  are,  "no  action  shall  be  brought," 
And  these  do  not  make  a  contract  not  complying  with 
its  provisions  illegal  or  void,  but  render  it  incapable 
of  being  enforced.  In  case  the  surety  voluntarily  pays 
the  debt  where  he  could  not  have  been  compelled  so 
to  do  because  his  contract  was  not  in  writing,  he  can- 
not recover  it;  the  contract  being  entirely  executed  on 
both  sides,  the  statute  will  not  affect  the  relations  of 
the  parties.  (Stone  v.  Dennison,  13  Pick.  1;  Shaw  v. 
Woodcock,  7  Barn.  &  C.  73.)  The  statute  affects  the 
remedy,  hence  a  verbal  contract  of  suretyship  valid  by 
the  law  of  the  country  where  made  will  not  be  enforced 
in  a  country  requiring  the  contract  to  be  in  writing. 
(Leroux  v.  Brown,  12  Com.  B.  801.) 

When  a  promise  is  divisible  as  to  the  thing  promised 


THE    CONTRACT    DEFINED.  183 

and  partly  within  and  partly  without  the  Statute  of 
Frauds,  it  is  held,  that  if  the  parts  of  the  promise  are 
so  connected  as  to  make  one  entire  contract,  rather  than 
distinct  promises,  the  contract  will  be  wholly  unenforce- 
able; while  if  the  portion  not  within  the  statute  can  be 
separated  from  the  part  of  the  promise  that  is,  an  action 
may  be  brought  on  the  valid  portion.* 

*Brandt,  Sur.  &  Guar.,  Sec.  52;  Wood  v.  Benson,  2  Cromp.  & 
Jer.  94;  Wetherbee  v.  Potter,  11  Allen  361 ;  Theob.  Prin.  &  Sur. 
278. 


CHAPTER  II. 

LIABILITY    OF    SURETY    OR    GUARANTOR HOW 

DISCHARGED,  ETC. 

Sec.  882.  CONSTRUCTION  OF  CONTRACT 
OF  SURETY  OR  GUARANTOR.— "In  guaran- 
ties, letters  of  credit,  and  other  obligations  of  sureties, 
the  terms  used  and  language  employed  are  to  have  a 
reasonable  interpretation  according  to  the  intent  of  the 
parties,  as  disclosed  by  the  instrument  read  in  the  light 
of  the  surrounding  circumstances  and  the  purposes  for 
which  it  was  made.  If  the  terms  are  ambiguous,  the 
ambiguity  may  be  explained  by  reference  to  the  circum- 
stances surrounding  the  parties,  and  by  such  aids  as 
are  allowable  in  other  cases,  and  if  an  ambiguity  still 
remains,  I  know  of  no  reason  why  the  same  rule  which 
holds  in  regard  to  other  instruments  should  not  apply; 
and  if  the  surety  has  left  anything  ambiguous  in  his 
expressions,  the  ambiguity  may  be  taken  most  strongly 
against  him."  (Per  Allen,  J.,  in  Belloni  v.  Freeborn, 
63  N.  Y.  383.)  This  statement  is  a  fair  summary  of 
the  general  rule  of  construction  as  regards  the  contracts 
of  the  surety  or  guarantor.  (Lawrence  v.  McCalmont, 
2  How.  [U.  S.]  426;  Wills  v.  Ross,  et  al.,  77  Ind.  1.) 

Another  general  rule  applying  to  the  contract  of 
the  surety  or  guarantor  is,  that  they  are  regarded  as 
favorites  of  the  law,  and  are  not  bound  beyond  the  strict 

184 


LIABILITY    OF    SURETY.  185 

terms  of  their  engagement,  when  such  terms  have  been 
ascertained.  (People  v.  Chalmers,  60  N.  Y.  154; 
Brandt,  Sur.  &  Guar.,  Sec.  93.)  It  is  held  to  be  well 
settled  that  the  guarantor  or  surety  is  bound  only  by 
the  strict  letter  or  precise  terms  of  the  contract  of  his 
principal,  whose  act  he  has  guarantied.  He  has  a  right 
to  stand  upon  the  very  terms  of  his  contract,  and  if 
he  does  not  assent  to  any  variation  of  it,  and  a  variation 
is  made  it  is  fatal.  (Kingsbury  v.  Westfall,  61  N.  Y. 
356;  Miller  v.  Stewart,  9  Wheat.  680.)  The  reason 
for  the  surety  being  treated  as  leniently  as  possible  is 
obvious,  since  he  is  not  paying  his  own  debt  or  obliga- 
tion, but  that  of  another,  and  should  not  be  charged  be- 
yond his  specific  agreement.  (Ludlow  v.  Simond,  2 
Caines'  Cas.  in  Error  1.) 

The  contract  of  the  surety  or  guarantor  is  construed 
to  cover  a  future  or  prospective  liability,  and  unless 
expressly  stated  to  cover  delinquencies  prior  to  its  exe- 
cution, it  will  have  no  retroactive  effect.  Thus,  where 
the  promise  of  the  guarantor  was  to  pay  for  all  coal  sup- 
plied the  principal  at  an  agreed  price  within  a  certain 
time,  it  was  held  to  apply  only  to  future  contracts  fixing 
terms  of  payment.  (Delaware,  L.  &  W.  R.  R.  Co.  v. 
Burkard,  114  N.  Y.  197.)  And  in  Weir  Plow  Co. 
v.  Walmsley  (110  Ind.  242),  it  was  held  that  a  surety 
for  a  commission  merchant  was  not  liable  for  a  default 
respecting  goods  bought  by  and  in  the  possession  of 
the  principal  prior  to  the  execution  of  the  contract.  And 
a  guaranty  for  the  payment  of  rent  under  a  lease  cov- 
ering "any  default"  in  the  payment  of  the  rent,  was  held 


186      SURETYSHIP  AND  GUARANTY. 

only  to  <?over  defaults  in  the  payment  of  the  rent  after 
the  execution  of  the  guaranty.  (Brooks  v.  Baker,  9 
Daly  [N.  Y.]  398.) 

Sec.  883.  WHEN  THE  SURETY  MAY  BE 
SUED. — Though  the  contract  of  the  surety  is  in  effect 
collateral  to  that  of  the  principal,  yet,  when  by  the  terms 
of  the  contract  the  obligation  of  the  surety  or  guarantor 
is  the  same  as  that  of  the  principal,  the  creditor,  upon 
default,  may  sue  the  surety  or  guarantor  immediately 
without  any  proceeding  against  the  principal.  ( Penny 
v.  Crane  Bros.  Mfg.  Co.,  80  111.  244.)  No  demand  on 
the  principal  is  necessary  in  such  cases  before  suit,  and 
the  suit  itself  is  a  sufficient  demand  on  the  surety  or 
guarantor.  (Hough  v.  Aetna  L.  Ins.  Co.,  57  111.  318; 
Carr  v.  Card,  34  Mo.  513.)  This  is  true,  also,  where 
the  creditor  has  a  mortgage  or  other  security,  he  need 
not  exhaust  the  security  of  the  principal  before  looking 
to  the  surety.  (Jones  v.  Ashford,  79  N.  C.  172.)  This 
is  the  common  law  rule,  and  prevails  in  England  and 
the  United  States,  except  where  changed  by  statute. 
By  the  Roman  Law  after  the  time  of  Justinian  the 
surety  had  the  right  to  require  the  creditor  to  pursue 
the  principal  debtor  to  judgment  and  execution,  before 
becoming  liable  on  his  obligation.* 


*Sec.  5835,  Rev.  Stat.  Ohio,  provides:  "A  person  bound  as 
surety  in  a  written  instrument  for  the  payment  of  money,  or 
other  valuable  thing,  may,  if  a  right  of  action  accrue  thereon, 
require  his  creditor,  by  notice  in  writing,  to  commence  an  action 
on  such  instrument  forthwith,  against  the  principal  debtor;  and 
unless  the  creditor  commences  such  action  within  a  reasonable 


LIABILITY    OF    SURETY.  187 

But  where  the  guaranty  in  terms  is  to  insure  the 
collection  of  a  debt  of  another,  there  is  no  default  of 
the  guarantor  until  the  creditor  has  attempted  by  due 
course  of  law  to  collect  the  debt  from  the  principal 
debtor.  (Ralph  v.  Eldredge,  58  Hun  203;  Lemmon 
v.  Strong,  55  Conn.  443.)  Some  cases  hold  that  legal 
proceedings  to  collect  are  imperative  before  the  liability 
of  the  guarantor  attaches,  and  this  though  the  principal 
debtor  is  insolvent.  But  the  guarantor  would  be  re- 
sponsible for  the  costs  made  in  the  attempt  to  collect 
in  such  cases.  (Craig  v.  Parkis,  40  N.  Y.  181 ;  Brandt, 
Sur.  &  Guar.,  Sec.  98.)  The  better  opinion  seems  to 
be  that  other  competent  evidence  to  show  that  the  prin- 
cipal debtor  was  insolvent  would  take  the  place  of  an 
actual  suit.  (Stone  v.  Rockefeller,  29  O.  St.  625: 
Brackett  v.  Rich,  23  Minn.  485.) 

Where  there  is  a  guaranty  of  a  note  or  bond  which 
in  terms  makes  the  guarantor  liable  for  the  payment  of 
the  instrument,  it  is  generally  held  that  the  holder  could 
not  look  to  such  guarantor  unless  he  had  first  been  dili- 
gent in  attempting  to  collect  from  the  principal  debtor. 
(Cowles  v.  Peck,  55  Conn.  251;  Johnston  v.  Chapman, 
3  Pen  &  Watts  18.)     So  if  a  note  is  guarantied  to  be 


time  thereafter,  and  proceed  with  due  diligence,  in  the  ordinary 
course  of  law,  to  recover  judgment  against  the  principal  debtor 
shall  thereby  forfeit  the  right  which  he  would  other- 
wise have  to  demand  and  receive  of  such  surety  the  amount  due 
thereon."  And  by  Sec.  5845,  Rev.  Stat.  Ohio,  the  surety  is  given 
a  right  of  action  against  his  principal,  to  compel  his  payment 
of  the  debt  after  it  becomes  due. 


188      SURETYSHIP  AND  GUARANTY. 

collectible,  the  creditor  must  exhaust  the  estate  of  all 
prior  solvent  parties  before  the  guarantor  can  be  made 
to  j)ay.  (Pittman  v.  Chisolm,  43  Ga.  442;  McClurg  v. 
Fryer,  15  Pa.  St.  293.) 

Sec.  884.  SAME  SUBJECT— MEANING  OF 
"DUE  DILIGENCE."— When  the  contract  of  the 
surety  is  not  the  same  as  that  of  the  principal,  but  only 
charges  him  when  the  creditor  has  exhausted  his  remedy 
against  the  principal,  the  creditor  is  bound  to  use  due 
diligence  in  proceeding  to  collect  from  the  primary  obli- 
gors. Just  what  will  constitute  due  diligence  depends 
upon  the  circumstances  surrounding  each  case,  and  is 
said  to  be  that  which  a  vigilant  creditor  employs  when 
he  has  no  other  security  than  the  obligation  of  the  prin- 
cipal debtor.  (Hoffman  v.  Bechtel,  52  Pa.  St.  190.) 
Due  diligence,  in  the  absence  of  any  special  facts,  is 
held  to  require  suit  to  be  instituted  at  the  first  regular 
term  of  court  after  the  maturity,  and  the  obtaining  judg- 
ment and  execution  thereon  as  soon  as  practicable  by 
the  ordinary  rules  and  practice  of  the  court.  (Voor- 
hies  v.  Atlee,  29  la.  49.)  The  determination  of  the  fact 
whether  due  diligence  has  been  exercised  or  not  is  prob- 
ably a  mixed  question  of  law  and  fact  for  the  jury  to 
pass  upon  under  instructions  from  the  court.  (Brandt, 
Sur.  &  Guar.,  Sec.  101;  Backus  v.  Shipard,  11  Wend. 
629.)  The  insolvency  of  the  principal,  or  the  existence 
of  war  making  it  impossible  to  collect  debts,  will  excuse 
delay  in  bringing  the  suit  to  collect  from  the  principal. 
( Bashford  v.  Shaw,  4  O.  St.  264 ;  Kinyon  v.  Brock,  72 
N.  C.  554.) 


LIABILITY    OF    SURETY.  189 

But  where  in  a  guaranty  of  payment,  the  time  within 
which  payment  shall  be  made  is  fixed,  and  there  is  a 
default  by  the  principal  within  the  time  specified,  the 
guarantor  is  in  default,  and  no  proceedings  need  be 
taken  against  the  principal  whether  insolvent  or  not. 
(Cobb  v.  Little,  2  Greenl.  [Me.]  261;  Roberts  v.  Rid- 
dle, 79  Pa.  St.  468.)  Here  the  terms  of  the  contract 
indicate  an  intention  to  become  liable  immediately  upon 
default,  and  not  after  the  principal  has  been  pursued 
to  judgment  and  execution.  And  where  the  guaranty 
is  in  terms  which  bind  the  promisor  to  the  absolute  pay- 
ment of  the  note  or  obligation  when  due,  demand  on 
the  principal  is  not  necessary  to  charge  such  guarantor. 
(Brown  v.  Curtis,  2  N.  Y.  225;  Hooker  v.  Gooding,  86 
111.  60.) 

Sec.  885.  LIABILITY  OF  SURETY  FOR 
PAYMENT  OF  OVERDUE  NOTES,  AND  FOR 
RENT  WHEN  TENANT  HOLDS  OVER.— 
Though  a  note  is  past  due,  and  the  guaranty  is  to  pay 
the  note  "when  due,"  or  "according  to  its  tenor,"  the 
guarantor  is  bound,  and  is  considered  to  have  stipulated 
to  answer  for  the  payment  of  a  note  payable  on  demand, 
since  he  is  understood  to  have  contracted  with  reference 
to  the  overdue  note.  (Crocker  v.  Gilbert,  9  Cush.  131; 
Gunn  v.  Madigan,  28  Wis.  158.) 

When  there  is  an  option  in  the  lease  for  a  renewal 
of  it  for  another  year  or  more  upon  the  same  terms, 
and  the  contract  of  the  guarantor  covers  such  lease,  he 
is  generally  held  for  the  default  of  the  principal  occur- 
ring during  the  period  of  the  renewal.     (Decker  v.  Gay- 


190      SURETYSHIP  AND  GUARANTY. 

lord,  8  Hun  110;  Deblois.v.  Earle,  7  R.  I.  26.)  And 
where  the  guaranty  of  the  payment  of  another's  rent 
reads:  "So  long  as  said  lessee  shall  occupy  said  prem- 
ises," it  was  held  to  include  in  the  word  "occupy"  the 
whole  period  of  tenancy.  (Morrow  v.  Brady,  12  R.  I. 
130.) 

Sec.  886.  EXTENT  OF  SURETY'S  LIA- 
BILITY FOR  A  DEBT,  OR  ON  A  BOND.— 
Where  the  contract  of  the  surety  expressly  or  in  effect 
covers  stipulated  damages,  they  may  be  recovered. 
(First  Natl.  Bank  v.  Breese,  39  la.  640;  Gridley  v. 
Capen,  72  111.  11.)  In  general,  the  surety  on  a  bond 
is  not  liable  beyond  the  sum  stated  in  the  bond  as  the 
penalty.  But  when  the  surety  is  in  default  and  neg- 
lects to  pay  within  a  reasonable  time,  he  may  be  held 
liable  for  the  legal  rate  of  interest  on  the  penal  sum,  as 
damages  for  the  delay.  (Brainard  v.  Jones,  18  N.  Y. 
35;  Perry  v.  Horn,  22  W.  Va.  381.)  Such  interest  is 
held  to  run  from  proper  demand,  or  from  date  of  suit 
or  service  of  summons.  (United  States  v.  Curtis,  100 
U.  S.  119.) 

Sec.  887.  LIABILITY  OF  SURETY  ON 
DISCOUNTED  NOTE.— The  surety  who  has  be- 
come a  party  to  a  promissory  note  to  raise  money  for 
the  principal  for  a  specified  purpose,  cannot  complain 
if  the  note  is  discounted  by  another  than  the  payee  and 
the  money  applied  to  the  purpose  intended.  (Bank  v. 
Bingham,  33  Vt.  621.)  And  where  a  note  was  executed 
to  buy  a  yoke  of  oxen  of  one  person  the  surety  to  have 
a  mortgage  on  them  for  security,  and  the  principal 


LIABILITY    OF    SURETY.  191 

bought  the  oxen  of  another  person,  who  knew  that  the 
note  was  given  to  buy  another  pair  of  oxen,  but  did  not 
know  of  the  agreement  as  to  the  mortgage,  both  prin- 
cipal and  surety  were  held  liable  on  the  note.  (Laub 
v.  Rudd,  37  la.  617.)  But  if  the  note  signed  by  the 
surety  for  a  particular  purpose  is  diverted  from  that 
purpose,  and  the  party  taking  it  knew  of  the  purpose 
for  which  it  was  executed,  the  surety  will  not  be  bound. 
(Brown  v.  Tabor,  5  Wend.  566.)  A  party  taking  such 
note  in  good  faith  for  value  and  without  notice  may  hold 
the  surety  regardless  of  the  fact  of  the  note  being  di- 
verted from  the  purpose  intended.  (McWilliams  v. 
Mason,  31  N.  Y.  294.) 

Sec.  888.  LIABILITY  OF  GUARANTOR  ON 
GENERAL  AND  PARTICULAR  GUAR- 
ANTY.— A  general  guaranty,  as  a  letter  of  credit  ad- 
dressed to  all  persons,  is  valid  and  may  be  enforced  by 
any  person  who  gives  credit  on  the  strength  of  it. 
(Lowry  v.  Adams,  22  Vt.  160.)  And  though  addressed 
to  a  named  person,  to  the  purchaser  or  a  third  person, 
the  guaranty  may  be  shown  by  the  surrounding  circum- 
stance to  be  intended  for  the  person  who  gives  credit 
upon  it.  (Drummond  v.  Preston,  12  Wheat.  515; 
Benedict  v.  Sherill,  Lalor's  Sup.  to  Hill  &  Denio  219.) 

When  the  guaranty  is  special,  that  is,  addressed  to  a 
named  person,  it  must  generally  be  acted  on  by  such 
party  to  bind  the  guarantor.  So  where  there  is  no  am- 
biguity, and  the  letter  of  guaranty  is  addressed  to  an 
individual,  it  could  not  be  enforced  by  a  partnership  who 
had  furnished  goods  upon  it,  though  the  individual  was 


192      SURETYSHIP  AND  GUARANTY. 

a  member  of  the  partnership.  (Sollee  v.  Mengy,  1 
Bailey,  Law  620.)  And  where  the  guaranty  authorized 
the  furnishing  of  goods  in  "Macon"  and  the  place  was 
changed  to  "Griffin"  without  the  guarantor's  consent, 
it  was  held  he  was  not  liable  on  the  guaranty.  (John- 
son v.  Brown,  51  Ga.  498.) 

And  the  rule  that  the  surety  is  only  bound  by  the 
strict  letter  of  his  contract  extends  to  a  case  where 
the  surety  has  become  liable  for  a  single  individual  and 
the  credit  has  been  given  to  several,  in  such  case  the 
surety  is  not  liable.  (Bell  v.  Norwood,  7  La.  95;  Con- 
necticut Mut.  L.  Ins.  Co.  v.  Scott,  81  Ky.  540.)  Like- 
wise, where  the  surety  has  become  bound  for  several, 
as  for  a  firm,  he  will  not  be  bound  if  the  credit  is  given 
to  one  of  the  parties,  as  a  partner  in  the  firm  after  dis- 
solution. (Cremer  v.  Higginson,  1  Mason  323;  Pem- 
berton  v.  Oakes,  4  Russell  154.)  So  a  surety  to  or  for 
a  firm  is  not  liable  after  a  change  in  the  members  of  the 
firm.  (Barnett  v.  Smith,  17  111.  565.)  So  the  surety 
on  a  bond  to  perform  the  award  of  certain  arbitrators 
will  not  be  liable  if  the  arbitrators  are  changed. 
(Mackey  v.  Dodge,  5  Ala.  388.) 

The  surety  will  not  be  held  liable  beyond  the  scope 
of  his  obligation,  and  if  the  terms  of  his  obligation  are 
varied,  or  a  thing  is  done  differently  from  what  was 
intended  or  specified  in  his  contract  he  will  not  be  bound. 
(Mercer  Co.  v.  Coovert,  6  Watts  &  S.  70;  Ryan  v. 
Morton,  65  Tex.  258.) 

Sec.  889.  LIABILITY^  OF  GUARANTOR  OR 
SURETY^  IN  SPECIAL  CASES.— Where  a  person 


LIABILITY    OF    SURETY.  193 

became  a  surety  on  a  bond  for  the  hire  of  a  slave,  with 
a  covenant  for  the  return  of  the  slave  at  the  end  of  the 
period  for  which  he  was  hired,  it  was  held  that  the  death 
of  the  slave  during  the  period  covered  by  the  bond  as 
a  result  of  cruel  treatment  by  the  principal,  would  not 
discharge  the  surety  from  his  liability  for  the  return 
of  the  slave.  (Carney  v.  Walden,  16  B.  Monr.  388.) 
The  surety  was  held  because  he  was  regarded  as  a  joint 
covenantor  with  the  principal,  and  neither  could  excuse 
his  liability  on  the  ground  that  the  other  by  his  wrong- 
ful act  had  made  performance  impossible. 

Where  the  surety  stipulates  that  the  payment  shall 
be  made  by  the  principal  part  in  cash  and  balance  in 
"good  obligations,"  he  is  not  responsible  for  bad  notes 
taken  and  receipted  for  by  the  creditor.  (Corbet  v. 
Evans,  25  Pa.  St.  310.)  And  when  the  surety's  prom- 
ise is  to  make  good  a  balance  remaining  due  after  "sale" 
of  mortgaged  property  of  principal,  the  surety  is  not 
in  default  until  the  sale  is  completed.  (Moor  v.  Rob- 
erts, 3  J.  Scott  [N.  S.]  830.) 

Sec.  890.  REVOCATION  OF  GUARANTY 
ON  DEATH  OF  GUARANTOR,  AND  BY 
NOTICE. — Unless  the  obligation  of  the  surety  is  a 
bare  authority,  and  not  a  contract  it  will  not  be  revoked 
by  his  death.  It  is  a  valid  obligation  against  the  estate 
of  the  surety  the  same  as  though  he  were  alive.  (Brandt, 
Sur.  &  Guar.,  Sec.  134,  citing  Hightower  v.  Moore,  46 
Ala.  387;  Royal  Ins.  Co.  v.  Davies,  40  la.  469,  etc.) 

But  since  the  surety  for  the  performance  of  a  con- 
tract, may,  after  a  default  by  the  principal  justifying 


194      SURETYSHIP  AND  GUARANTY. 

its  determination,  demand  of  the  creditor  that  the  con- 
tract be  terminated,  and  his  suretyship  be  limited  to  the 
damages  then  sustained  (Hunt  v.  Roberts,  45  N.  Y. 
691),  it  is  sometimes  held  that  the  death  of  the  guar- 
antor will  operate  as  notice  to  the  creditor  of  such  ter- 
mination, or  operate  to  revoke  his  authority  to  give  fur- 
ther credit  on  a  limited  guaranty.  (Harriss  v.  Fawcett, 
L.  R.  8  Ch.  App.  Cas.  866;  Michigan  State  Bank  v. 
Estate  of  Leavenworth,  28  Vt.  209.)  And  the  death 
of  the  guarantor  will  revoke  a  continuing  guaranty  as 
to  subsequent  advances  if  the  creditor  has  notice  of  the 
death.  (Hyland  v.  Habich,  150  Mass.  112.)  The 
creditor  or  other  party  secured  by  a  guaranty  would 
have  a  reasonable  time  to  secure  other  sureties,  after 
receiving  notice  that  the  surety  desired  to  be  discharged 
before  such  notice  would  take  effect.  (Bostwick  v.  Van 
Voorhis,  91  N.  Y.  353.). 

Sec.  891.  WHEN  THE  SURETY  MAY  BE 
SUED  JOINTLY  WITH  THE  PRINCIPAL.— 
If  the  principal  and  surety  are  jointly  liable  on  the 
same  contract,  they  may  be  sued  jointly,  though  the  fact 
of  the  one  being  a  surety  appears  on  the  instrument,  as 
where  a  note  reads  "I  promise"  and  is  signed  by  the 
principal  and  another  who  adds  "surety"  to  his  name. 
(Dart  v.  Sherwood,  7  Wis.  523;  Craddock  v.  Armor, 
10  Watts  258.)  Where  the  wording  of  the  surety's 
promise  shows  that  his  liability  is  distinct  from  and  col- 
lateral to  that  of  the  principal,  as  where  the  words  are 
"in  case  of  non-payment,"  or  "not  being  fulfilled"  on 
the  part  of  the  principal,  the  surety  cannot  be  sued 


LIABILITY    OF    SURETY.  195 

jointly  with  the  principal.     (Cross  v.  Ballard,  46  Vt. 
415;  Virden  v.  Ellsworth,  15  Ind.  144.) 

Sec.  892.  SURETY  NOT  LIABLE  AT  LAW, 
MAY  OR  MAY  NOT  BE  CHARGEABLE  IN 
EQUITY. — A  court  of  equity  will  charge  a  surety  in 
many  cases  where  he  is  not  liable  at  law,  as  by  allowing 
a  lost  bond  to  be  set  up  (Kerney  v.  Kerney,  6  Leigh, 
Va.,  478),  reform  a  bond  so  as  to  correspond  with  the 
facts,  intention  or  purpose  for  which  it  was  given. 
(Olmsted  v.  Olmsted,  38  Conn.  309;  Percival  v.  Mc- 
Coy, 13  Fed.  Rep.  379.)  At  law  there  is  no  remedy 
against  the  estate  of  a  deceased  surety  in  a  joint  obliga- 
tion, and,  in  general,  equity  will  not  charge  the  estate 
of  such  surety,  unless  there  is  some  previous  equity,  or 
all  the  obligors  partook  of  the  consideration,  and  it 
would  appear  that  the  intention  had  been  to  make  a 
joint  and  several  note  instead  of  a  joint  one.* 

Where  the  surety  or  guarantor  in  a  joint  obligation 
is  directly  benefited  by  the  contract,  his  estate  will  be 
held  liable  on  the  promise.  (Richardson  v.  Draper,  87 
N.  Y.  337.)  And  the  surety  may  expressly  bind  his 
estate  so  that  it  will  be  liable,  and  the  State  statutes 
providing  that  all  causes  of  action  founded  on  contract 
survive,  will  hold  the  estate  of  surety  on  a  joint  prom- 
issory note.     (Redman  v.  Marvil,  73  Ind.  593.) 

*Brandt,  Sur.  &  Guar.,  Sec.  139;  Pickersgill  v.  Lahnes,  15 
Wall.  140.  "Where  a  joint  appeal  bond  is  signed  by  two  sure- 
ties, and  one  of  them  dies,  his  estate  is  discharged  from  liability, 
both  at  law  and  in  equity,  and  the  fact  that  the  bond  was  given 
in  pursuance  of  a  statute  does  not  affect  the  liability  thereunder." 
(Brandt,  Sec.  139,  citing  Wood  v.  Fisk,  63  N.  Y.  245.) 


196      SURETYSHIP  AND  GUARANTY. 

Sec.  893.  CONTRACT  OF  SURETY  GOV- 
ERNED BY  LAW  OF  PLACE  WHERE 
MADE. — The  general  rule  is  that  the  liability  of  the 
surety  or  guarantor  is  construed  according  to  the  law 
of  the  place  of  making  the  contract.  (Long  v.  Temple- 
man,  24  La.  Ann.  564.)  The  intention  of  the  parties 
may  change  this  rule,  and  make  the  contract  subject  to 
the  laws  of  a  state  other  than  the  one  where  executed. 
(Milliken  v.  Pratt,  125  Mass.  374.) 

Sec.  894.  LIABILITY  OF  SURETY  WHEN 
PRINCIPAL  DISCHARGED  OR  NOT  ORIG- 
INALLY BOUND. — As  a  general  rule  the  surety 
is  not  bound  where  the  principal  for  some  reason  is 
not  bound  by  the  contract  on  which  the  surety  has  prom- 
ised, since  the  surety's  contract  is  collateral  or  accessory 
to  that  of  the  principal,  and  the  principal  being  dis- 
charged the  surety  is  also.  (Ferry  v.  Burchard,  21 
Conn.  597.)  But  there  are  cases  when  the  surety  can- 
not take  advantage  of  the  release  of  the  principal.  A 
distinction  is  drawn  as  regards  the  reasons  which  dis- 
charge the  principal,  if  they  effect  the  debt  or  contract 
itself,  as  fraud,  violence,  or  other  reason  avoiding  the 
obligation  the  surety  is  discharged  with  the  principal, 
but  if  they  are  personal  to  the  principal,  as  insolvency, 
minority,  and  the  like,  the  surety  will  not  be  released. 
(Baldwin  v.  Gordon,  12  Martin  [La.]  O.  S.  378.)  A 
release  of  the  principal  by  the  creditor  without  reserva- 
tion will  release  the  surety,  since  he  has  no  right  of 
action  against  such  released  principal.  (Trotter  v. 
Strong,  63  111.  272.)     But  the  creditor  may  reserve  his 


LIABILITY    OF    SURETY.  197 

rights  against  the  surety  and  release  the  principal,  and 
yet  hold  the  surety.  (Green  v.  Wynn,  L.  R.  4  Ch. 
App.  Cas.  204.)  And  where  the  surety  is  fully  indem- 
nified he  will  not  be  discharged  by  the  creditor  releas- 
ing the  principal.  (Moore  v.  Paine,  12  Wend.  123.) 
The  discharge  of  the  principal  by  act  of  law,  as  under 
a  bankrupt  or  insolvency  law,  will  not  discharge  the 
surety.  (Cowper  v.  Smith,  4  M.  &  W.  519;  Wolf  v. 
Stix,  99  U.  S.  1;  Lackey  v.  Steere,  121  111.  598.)  The 
authorities  are  divided  as  to  the  liability  of  the  surety 
where  the  principal,  who  is  named  in  the  instrument, 
does  not  sign  it  at  all.  In  a  number  of  cases  it  is  held 
that  the  surety  is  not  liable,  and  in  others  he  is  held  not 
to  be  released  by  such  failure  to  sign.* 

A  surety  for  an  infant  or  married  woman  is,  in  gen- 
eral, bound  though  such  principal  set  up  his  or  her  disa- 
bility and  be  discharged.  The  courts  holding  that  the 
incapacity  of  the  principal  might  be  the  very  reason 
why  a  surety  was  required.  (Bank  v.  Dillon,  30  Vt. 
122;  Weed  Sewing  Machine  Co.  v.  Maxwell,  63  Mo. 
486.) 

Sec.  895.  NECESSITY  FOR  DEMAND  ON 
PRINCIPAL  AND  NOTICE  OF  DEFAULT 
TO   GUARANTOR.— "The    authorities   are   agreed 

*Bean  v.  Parker,  17  Mass.  591 ;  People  v.  Hartley,  21  Cal. 
585;  Johnston  v.  Kimball  Twp.,  39  Mich.  187;  State  v.  Austin, 
35  Minn.  51,  hold  that  the  surety  will  not  be  bound,  while  the  fol- 
lowing hold  the  contrary :  State  v.  Bowman,  10  Ohio  445 ;  State 
v.  Peyton,  32  Mo.  App.  522;  Cahill's  Appeal,  48  Mich.  616; 
Trustees  of  Schools  v.  Sheik,  119  111.  579;  Mcintosh  v.  Hurst, 
6  Mont.  287. 


198      SURETYSHIP  AND  GUARANTY. 

that,  where  the  liability  of  the  guarantor  depends  upon 
a  contingency,  it  is  necessary  that  notice  of  default 
should  be  given  to  the  guarantor  within  a  reasonable 
time  after  demand ;  and  demand  should  be  made  of  the 
principal  at  or  very  soon  after  maturity.  (Clay  v. 
Edgerton,  19  Ohio  St.  553;  Montgomery  v.  Kellogg,  43 
Miss.  486.) 

"But  where  the  guaranty  is  absolute,  the  authorities 
are  divided,  some  holding  that  the  guarantor's  liability 
becomes  absolute  at  maturity,  without  any  demand  on 
the  principal  or  notice  of  default  to  himself  (Brown  v. 
Curtis,  2  N.  Y.  228;  Voltz  v.  Harris,  40  111.  159),  and 
others,  claiming  that  in  order  to  make  sure  of  the  lia- 
bility of  the  guarantor  in  any  case,  demand  must  be 
made  of  the  principal,  and  notice  of  default  sent  to  the 
guarantor,  within  a  reasonable  time  after  maturity."* 

Where  principal  is  insolvent  when  the  debt  becomes 


*Tiedcman,  Com.  Pap.,  Sec.  421 ;  Douglass  v.  Reynolds,  7 
Pet.  126  ;  Second  Nat.  Bank  v.  Gaylord,  34  la.  248;  Newton 
Wagon  Co.  v.  Dicrs,  10  Neb.  285.  "But  this  requirement  of  de- 
mand and  notice  is  never  considered  an  absolute  condition  prece- 
dent to  the  liability  of  the  guarantor.  The  guarantor  is  dis- 
charged from,  liability  on  account  of  the  failure  of  demand  and 
notice,  only  when  such  failure  results  in  some  loss  or  damage  to 
the  guarantor,  which  he  could  have  avoided,  had  he  received 
notice  of  the  principal's  default  within  a  reasonable  time  after 
maturity.  If  he  has  sustained  no  loss,  he  is  liable,  notwithstand- 
ing the  failure  of  demand  and  notice.  For  example,  the  guaran- 
tor is  liable,  notwithstanding  the  want  of  notice,  if  the  principal 
was  insolvent  at  and  before  maturity  of  the  paper,  because  the 
law  presumes  that  the  guarantor  suffers  nothing  in  such  case." 
(Tiedeman,  Com.  Pap.,  Sec.  421.) 


LIABILITY    OF    SURETY.  199 

due  no  notice  of  his  default  need  be  given  the  guar- 
antor. (Wolfe  v.  Brown,  5  Ohio  St.  304.)  So,  where 
the  guarantor's  promise  is  unconditional,  and  made  after 
the  debt  was  due  from  the  principal,  no  notice  of  de- 
mand on  principal  and  default  need  be  given  to  hold 
the  guarantor.  (Munro  v.  Hill,  25  S.  C.  476;  Read 
v.  Cutts,  7  Greenl.,  Me.  186.)  The  guarantor  may 
waive  demand  and  notice  of  default,  and  a  subsequent 
promise  to  pay  the  debt  made  by  the  guarantor  will  be 
treated  as  a  waiver  of  demand  and  notice.  (Wads- 
worth  v.  Allen,  8  Gratt.  174;  Reynolds  v.  Douglass,  12 
Pet.  523.)  But  where  the  advances  are  made  to  the 
principal  on  a  letter  of  credit  given  by  the  guarantor, 
by  the  weight  of  authority,  demand  of  payment  must 
be  made  on  the  principal,  and  notice  of  default  given 
to  the  guarantor,  unless  the  principal  be  insolvent  at 
the  date  of  maturity.  (Douglas  v.  Reynolds,  7  Pet. 
113.) 

Notice  of  default,  when  necessary  to  be  given,  should 
be  given  within  a  reasonable  time,  and  this  depends  upon 
the  circumstances  of  each  case.  The  question  what  con- 
stitutes reasonable  time  would  be  a  question  for  the 
jury  under  instruction  from  the  court.  (Brandt,  Sur. 
&  Guar.,  Sec.  203;  Lowry  v.  Adams,  22  Vt.  160.) 
Proof  that  notice  was  given  may  be  inferred  from  cir- 
cumstances, and  any  notice  coming  to  the  guarantor, 
whether  from  the  creditor  or  not,  will  be  sufficient  to 
charge  him.  (Griffin  v.  Rewbert,  2  Rich.  Law,  N.  S. 
410;  Oaks  v.  Weller,  16  Vt,  63.)  The  notice  need  not 
be  in  writing  or  any  particular  form,  unless  specified  in 


200      SURETYSHIP  AND  GUARANTY. 

the  contract.     (Lee  v.  Briggs,  39  Mich.  592;  Brandt, 
Sur.  &  Guar.,  Sec.  204.) 

Sec.  896.  LIABILITY  OF  BLANK  INDORS- 
ERS  AND  ACCOMMODATION  PARTIES  TO 
COMMERCIAL  PAPER.— Accommodation  par- 
ties, as  a  rule,  unless  they  have  indicated  the  fact  of 
their  suretyship  in  signing,  will  assume  the  same  lia- 
bilities, and  are  in  general,  entitled  to  the  same  rights 
of  demand  and  notice  of  non-payment,  except  the  prin- 
cipal, as  if  their  apparent  character  of  drawer,  drawee, 
payee  and  indorser  was  real.* 

"There  is  another  class  of  indorsers  not  in  general 
subject,  like  those  above  mentioned,  to  the  law  relating 
to  commercial  paper.  Thus:  A  executes  his  note  pay- 
able to  B  or  order,  or  to  B  alone,  and  then,  before  its 
negotiation  by  B,  X,  in  no  way  apparently  connected 
with  the  note  as  holder  or  transferor,  indorses  his  name 
in  blank  on  the  note,  and  then  B  or  his  assignee,  sues 
upon  it.  The  question  arises,  when  and  for  what  pur- 
pose did  X  do  this?  Such  an  outside  blank  indorse- 
ment on  a  bill  or  note  does  not  come  within  the  law 


*Swan's  Treatise,  15th  ed.,  p.  578:  "Even  an  accommodation 
drawer  is  entitled  to  notice  of  demand  and  non-payment  if  he  had 
reason  to  expect  his  principal  would  provide  funds  to  meet  the 
bill ;  and  the  accommodation  indorsers  and  parties  to  such  bill  of 
exchange  are  liable  to  the  holder  and  each  other  separately,  and 
in  the  order  in  which  they  have  become  apparently  parties  to  the 
bill."  Id. :  As  between  themselves  they  may  show  their  intention 
to  be  liable  as  co-sureties.  And  such  accommodation  indorsers  on 
a  promissory  note  are  prima  facie  co-sureties.  (Williams  v.  Blos- 
som, 11  Ohio  62;  Douglas  v.  Waddle,  1  Ohio  413.) 


LIABILITY    OF    SURETY.  201 

relating  to  indorsers  of  commercial  paper,  and  is  open, 
in  general,  to  construction  to  the  intent  and  liability  of 
X,  and  to  parol  evidence  to  show  the  relation  of  X  to 
the  transaction."     (Swan's  Treatise,  p.  579.)  t 

"It  is,  however,"  says  Mr.  Brandt,  "well  settled  that 
the  agreement  upon  which  the  blank  indorser  of  an- 
other's obligation  signed,  and  the  liability  which  he  in- 
tended to  assume,  may  (at  least  between  the  original 
parties,  or  those  parties  and  a  holder  with  notice),  be 


f  "The  English  rule  is  that  where  one  who  appears  as  a  prin- 
cipal party  is  a  surety  for  another,  who  appears  to  be  a  second- 
ary party,  drawer  or  indorser,  this  fact  may  be  shown  by  parol 
evidence,  and  the  party  who  is  in  fact  a  surety  will  be  entitled  to 
all  the  rights  and  privileges  of  a  surety,  as  against  any  holder 
who  knew  the  fact.  This  is  the  equitable  rule,  enforced  in  all 
English  courts,  in  which  equitable  pleas  are  admissible;  but,  ac- 
cording to  the  common  law  rule  as  laid  down  by  Lord  Mansfield, 
the  parties  to  commercial  paper  sustain  the  liabilities  and  enjoy 
the  privileges  and  rights,  which  are  incident  to  their  ostensible 
characters,  and  no  others.  According  to  this  rule  it  is  not  per- 
missible to  show  by  parol  evidence  that  the  drawer  or  indorser  is 
the  principal  debtor,  and  that  the  maker  or  acceptor  is  the  accom- 
modation party  or  surety,  in  order  to  bind  the  subsequent  holder, 
who  knew  the  fact.  In  the  United  States  a  few  highly  respect- 
able authorities  have  adopted  the  English  equitable  rule.  (Guild 
v.  Butler,  127  Mass.  386.)  But  the  weight  of  authority  in  this 
country  favors  the  English  common  law  rule.  (Gano  v.  Heath, 
36  Mich.  441 ;  Summerhill  v.  Tapp,  52  Ala.  227.)  The  principal 
reason  for  holding  to  the  common  law  rule  is,  that  the  party  who 
is  ostensibly  the  primary  debtor  can  always  protect  himself 
against  any  act  of  indulgence  to  the  ostensibly  secondary,  but 
actually  primary  obligor,  by  paying  the  debt  himself,  and  recov- 
ering the  sum  so  paid  of  the  real  primary  debtor."  (Tiedeman, 
Com.  Pap.,  Sec.  422.) 


202      SURETYSHIP  AND  GUARANTY. 

shown  by  parol  evidence,  and  he  will  be  held  only  ac- 
cording to  such  agreement  and  intention."  (Sur.  & 
Guar.,  Sec.  182,  citing  Sanford  v.  Norton,  14  Vt.  228; 
Chandler  v.  Westfall,  30  Tex.  475,  etc.) 

OF  THE  DISCHARGE  OF  THE  SURETY  OR  GUARANTOR. 

Sec.  897.     WAYS  IN  WHICH  SURETY  OR 
GUARANTOR   MAYr  BE   DISCHARGED.— In 

general,  the  surety  or  guarantor  may  be  discharged  by 
payment  of  the  obligation  for  which  he  is  liable;  by  the 
creditor  giving  an  extension  of  time  to  the  principal; 
by  the  alteration,  without  his  consent,  of  his  contract; 
by  the  fraud,  concealment  and  the  like  acts  on  the  part 
of  the  creditor;  and  by  the  creditor  releasing,  or  negli- 
gently losing  security  for  the  debt.  Each  of  these  forms 
of  discharges  will  be  briefly  discussed  in  their  order. 

Sec.  898.  DISCHARGE  OF  SURETY  OR 
GUARANTOR  BY  PAYMENT.— In  general  the 
liability  of  the  surety  or  guarantor  ceases  when  the  debt 
of  the  principal  is  paid.  (Petefish,  Skiles  &  Co.  v. 
Watkins,  124  111.  384.)  But  where  a  payment  is  made 
by  the  principal  and  accepted  by  creditor  and  after- 
wards, without  fault  of  the  creditor,  such  payment  is 
set  aside,  as  a  fraudulent  preference,  the  surety  will  not 
be  discharged.  (Watson  v.  Poague,  42  la.  482.)  When 
payments  are  made  by  the  principal  on  his  general  in- 
debtedness to  the  creditor,  the  rule  as  to  their  applica- 
tion is  practically  the  same  as  that  given  in  a  previous 
section  as  to  payments  on  notes.  (Ante,  Sec.  832.) 
When  the  debt  is  once  paid  it  cannot  be  revived  by 


LIABILITY    OF    SURETY.  203 

an  agreement  between  principal  and  creditor  otherwise 
applying  the  sum,  so  as  to  bind  the  surety.  (Gibson 
v.  Rix,  32  Vt.  824.)  And  if  funds  have  been  appropri- 
ated by  the  principal  to  the  payment  of  the  debt,  they 
cannot  be  diverted  to  the  payment  of  any  other  debt  of 
the  principal  without  the  consent  of  the  surety.  (Mel- 
lendy  v.  Austin,  69  111.  15.)  The  creditor  holding  se- 
curity is  regarded  as  a  trustee  for  the  purpose  of  its 
distribution,  and  must  apply  it  according  to  the  trust. 
(Hidden  v.  Bishop,  5  R.  I.  29.)  And  it  held  that  the 
surety  is  discharged  for  payment  on  behalf  of  the  prin- 
cipal, regardless  of  the  source  of  the  money,  and  an- 
other advancing  it  to  the  principal  cannot  hold  the 
surety.     (Felch  v.  Lee,  15  Wis.  265.) 

A  valid  tender  of  the  money  due  on  the  debt  by  the 
principal,  after  the  debt  is  due,  if  not  accepted  by  the 
creditor,  will  discharge  the  surety.  Otherwise,  the  courts 
say,  the  creditor  would  have  the  power  to  keep  the 
surety  under  the  cloud  of  the  debt  any  length  of  time. 
(Johnson  v.  Ivey,  4  Cold.  [Tenn.]  608;  Spurgeon  v. 
Smitha,  114  Ind.  453.)  So  where  the  creditor  accepts 
part  payment  from  the  principal  in  full  satisfaction  of 
the  debt  the  surety  is  discharged.  (Heitz  v.  Atlee,  67 
la.  483.) 

Sec.  899.  DISCHARGE  OF  SURETY  OR 
GUARANTOR  BY  GIVING  TIME.— The  surety 
or  guarantor  obligated  to  pay  the  debt  of  another  will 
be  discharged  if  the  creditor,  without  the  consent  of  the 
surety  or  guarantor,  by  an  agreement  upon  sufficient 
consideration,  with  the  principal,  extend  the  time  of  pay- 


204      SURETYSHIP  AND  GUARANTY. 

ment  or  performance  for  a  definite  time;  and  this 
whether  the  extension  is  given  before  or  after  the  debt 
is  due,  or  after  judgment  taken  upon  it. 

1.  The  Consideration. — The  agreement  for  an  exten- 
sion of  time  between  principal  and  creditor  to  operate 
as  a  discharge  must  be  founded  upon  a  sufficient  con- 
sideration the  same  as  any  simple  contract.  Without 
a  consideration  the  contract  is  not  binding  and  the  surety 
not  precluded  from  proceeding  against  the  principal. 
(Ford  v.  Beard,  31  Mo.  459;  Zane  v.  Kennedy,  73 
Pa.  St.  182.)  A  mere  voluntary  or  passive  delay  by 
the  creditor,  however  long  continued,  will  not  release 
the  surety.  (Whiting  v.  Clark,  17  Cal.  407.)  And  it 
is  held  that  the  payment  of  interest  when  due,  or  part 
payment  of  the  debt  when  due,  will  not  be  a  sufficient 
consideration  to  support  the  contract  for  an  extension 
of  time  as  such  payments  are  due  to  the  creditor  any- 
way. (Roberts  v.  Stewart,  31  Miss.  664;  Johnston  v. 
Thompson,  4  Watts  446.)  But  the  payment  of  interest 
in  advance,  or  the  payment  of  any  part  of  the  debt 
before  due,  will  be  a  sufficient  consideration,  as  this  is 
an  advantage  to  the  creditor.  (Uhler  v.  Applegate, 
26  Pa.  St.  140;  Mayer  v.  Lanfrom,  86  111.  513.)  And 
in  the  case  of  interest  being  paid  in  advance  it  is  held 
in  many  cases  that  such  payment  operates  as  a  prima 
facie  agreement  to  extend  the  time  of  payment  of  the 
debt  for  the  period  for  which  interest  was  paid,  with- 
out further  evidence.  (Woodburn  v.  Carter,  50  Ind. 
376;  Crosby  v.  Wyatt,  10  N.  H.  318;  Contra,  Hosea 
v.  Rowley,  57  Mo.  357.)      The  agreement  to  pay  in- 


LIABILITY    OF    SURETY.  205 

terest  for  the  period  of  the  extension  is  sometimes  held 
to  be  a  sufficient  consideration,  though  at  no  higher  rate 
than  the  obligation  previously  drew.  (McComb  v. 
Kittridge,  14  Ohio  348.)  It  being  considered  a  val- 
uable right  to  have  money  placed  at  interest.  The  pay- 
ment of  an  increased  rate  of  interest  is  sufficient.  ( Huff 
v.  Cole,  45  Ind.  300.)  The  payment  of  usurious  inter- 
est is  held  to  be  a  sufficient  consideration  for  an  exten- 
sion. (Turrill  v.  Boynton,  23  Vt.  142.)  But  the 
agreement  to  pay  usurious  interest  is  not  sufficient, 
since  it  is  void.  (Hunt  v.  Postlewait,  28  la.  427.) 
And  where  the  statute  of  the  State  declared  all  con- 
tracts infected  with  usury  void,  the  actual  payment  of 
usury  was  held  not  to  be  sufficient  consideration  to  sup- 
port an  agreement  for  an  extension  of  time  so  as  to 
discharge  the  surety.  (Vilas  v.  Jones,  1  N.  Y.  274; 
Irvine  v.  Adams,  48  Wis.  468.) 

2.  For  a  Definite  Time. — The  extension  of  time 
must  be  definite,  otherwise  the  hands  of  the  creditor  are 
not  tied,  the  contract  being  void  for  uncertainty.  When 
the  extension  relied  on  was  to  wait  "awhile  longer," 
it  was  held  void  for  uncertainty  and  the  surety  not  re- 
leased. (Jenkins  v.  Clarkson,  7  Ohio  72.)  But  an 
extension  of  time  "to  the  summer"  or  "to  the  fall"  was 
held  sufficiently  certain  and  definite.  (Abel  v.  Alex- 
ander, 45  Ind.  523.)  But  an  extension  of  the  time  of 
payment  until  "some  time  in  the  summer"  was  held  too 
indefinite.  (Miller  v.  Stein,  2  Pa.  St.  286.)  The 
surety  may  consent  to  an  extension  of  the  time  of  pay- 
ment, and  in  such  case  will  not  be  discharged.     (Trent 


206      SURETYSHIP  AND  GUARANTY. 

v.  Smith,  54  Me.  112.)  And  the  surety  after  having 
been  discharged  by  the  giving  of  time  to  the  principal, 
may  bind  himself  by  a  new  promise  to  pay  the  debt. 
If  he  knows  the  facts  of  his  discharge  by  the  gi\  ing 
of  time  no  new  consideration  need  appear  for  the  prom- 
ise, but  it  must  be  upon  consideration  if  he  does  not 
know  of  his  discharge.  (X.  II.  Savings  Bank  v.  Col- 
cord,  15  N.  H.  119;  Williams  v.  Boyd,  75  Ind.  286; 
Bramble  v.  Ward,  40  Ohio  St.  267.) 

Sec.  900.  SAME  SUBJECT— EXCEPTIONS 
AND  OTHER  PRINCIPLES.— To  the  rule  that 
the  surety  will  be  discharged  by  giving  time  to  the 
principal  several  exceptions  exist:  Thus  where  the 
surety  is  fully  indemnified  by  property  of  the  principal 
put  under  his  control  to  meet  his  obligation,  such  surety 
will  not  be  discharged  by  an  extension  of  time  granted 
to  the  principal  by  the  creditor.  ( Kleinhaus  v.  Hener- 
ous,  25  O.  St.  667.)  The  surety  is  regarded  as  the 
principal,  or  as  holding  property  appropriated  to  the 
payment  of  the  debt  of  the  principal.  ( Smith  v.  Steele, 
25  Vt.  427.)  So  the  giving  of  time  to  the  surety  by 
an  agreement  between  creditor  and  principal,  as  by  the 
creditor  agreeing  that  he  shall  not  be  sued  for  a  stated 
time  after  the  debt  is  due,  does  not  affect  the  liabilities 
of  the  surety  or  principal.  (Emery  v.  Richardson,  61 
Me.  99.)  But  a  solidary  co-surety  would  be  discharged 
from  one-half  the  debt  by  giving  time  to  the  other. 
(Gosserand  v.  Lacour,  8  La.  Ann.  75.)  The  agree- 
ment to  give  time  may  be  express  or  implied  if  car- 


LIABILITY    OF    SURETY.  207 

ried  out  according  to  its  terms.  (Osborn  v.  Low,  40 
Ohio  St.  347.) 

The  surety  is  discharged  though  the  agreement  for 
an  extension  of  time  is  not  made  until  after  the  debt 
is  due  (Wheaton  v.  Wheeler,  27  Minn.  464),  or  after 
judgment  taken.      (Pilgrim  v.  Dykes,  24  Tex.  383.) 

The  taking  of  a  new  note  from  the  principal  by  the 
creditor  which  note  falls  due  on  a  later  date  than  the 
original  obligation  signed  by  the  surety,  will  discharge 
the  surety,  as  it  amounts  to  an  extension  of  time. 
(Chicasaw  Co.  v.  Pitcher,  36  la.  593.)  Otherwise  where 
the  new  note  falls  due  before  the  original.  (Robinson 
y.  Dale,  38  Wis.  330.) 

The  taking  of  collateral  security,  as  a  trust  deed  or 
mortgage  security,  will  not,  in  general,  discharge  the 
surety,  though  it  matures  after  the  time  of  payment  of 
the  debt,  if  it  does  not  amount  to  an  extension  of  the 
time  of  payment.  (Burke  v.  Crueger,  8  Tex.  66;  Ger- 
man Ins.  Co.  v.  Vahle,  28  111.  App.  557.)  But  this 
rule  is  only  prima  facie  and  gives  place  to  an  express 
agreement  for  an  extension  of  time  on  taking  such  se- 
curity. The  agreement  for  extension  of  time  in  order 
to  work  a  discharge  of  the  surety  must  be  made  by  the 
creditor  or  his  lawfully  authorized  agent.  And  where 
the  creditor  reserves  remedies  against  the  surety  in  giv- 
ing time  to  the  principal  the  surety  is  not  discharged. 
(Morse  v.  Huntington,  40  Vt.  488.) 

When  the  surety  pleads  an  extension  of  time  by  the 
creditor  as  a  discharge,  he  must  set  up  the  facts  of  the 


208      SURETYSHIP  AND  GUARANTY. 

case  and  not  a  mere  conclusion  of  law.      (Tracy  v. 
Quillen,  65  Ind.  249.) 

Sec.  901.  DISCHARGE  OF  SURETY"  OR 
GUARANTOR  BYT  ALTERATION  OF  THE 
CONTRACT.— The  giving  of  time  by  the  creditor  to 
the  principal  is  an  alteration  of  the  surety's  contract  and 
is  the  chief  reason  of  his  being  discharged.  (Lane  & 
Saylor  v.  Scott  &  Culver;  57  Tex.  367.)  Other  altera- 
tions by  the  parties  to  the  contract,  of  its  terms,  will, 
in  like  manner,  discharge  the  surety.  (Hobbs  v.  Rue, 
4  Pa.  St.  348.)  Thus,  by  changing  the  date  of  a  note 
without  the  consent  of  the  surety,  the  holder  will  dis- 
charge such  surety.  (Miller  v.  Gilleland,  19  Pa.  St. 
119.)  So  where  the  principal  adds  "with  interest  from 
date,"  to  a  note  written  without  interest  when  signed 
by  the  surety,  the  latter  is  discharged.  ( Kountz  v.  Hart, 
17  Ind.  329.)  The  addition  of  a  new  party  to  a  note 
after  the  execution  and  delivery  by  the  surety,  without 
his  consent,  though  a  benefit  to  such  surety,  will  dis- 
charge him.  (Bank  v.  Penick,  2  T.  B.  Monr.  Ky.  98.) 
Otherwise  if  the  signature  of  new  surety  was  added 
before  delivery.  (Graham  v.  Rush,  73  la.  451.)  And, 
in  general,  any  material  or  essential  feature  of  the 
surety's  contract  altered  by  a  party  to  the  instrument, 
will  work  a  discharge  of  the  surety.*    The  surety  may 


*"No  principle  of  law  is  better  settled  at  this  day  than  that, 
the  undertaking  of  the  surety  being  one  strictissimi  juris,  he  can- 
not, either  at  law  or  in  equity,  be  bound  farther  or  otherwise  than 
he  is  by  the  very  terms  of  his  contract.  .  .  .  Neither  is  it 
of  any  consequence  that  the  alteration  in  the  contract  is  trivial, 


LIABILITY    OF    SURETY.  209 

ratify  the  alteration  after  it  is  made  and  will  then  be 
hound.     (Pelton  v.  Prescott,  13  la.  567.) 

Where  the  contract  of  the  surety  is  for  the  conduct 
of  the  principal  in  an  office  or  position  of  trust,  and  after 
the  surety  has  become  bound  a  change  is  made  in  the 
duties  of  such  principal,  the  surety  will  be  discharged, 
(Gass  v.  Stinson,  2  Sumner  453;  Miller  v.  Stewart, 
9  Wheat.  680.)  Where  the  bond  of  the  surety  was 
for  the  honesty  and  faithfulness  of  an  assistant  book- 
keeper, and  such  book-keeper  was  made  to  perform  the 
duties  of  note  teller  and  discount  clerk  and  defaulted 
in  the  performance  of  the  latter  duties,  the  surety  was 
held  to  be  discharged.  (Natl.  Bank  of  Baltimore  v. 
Gerke,  68  Md.  449.) 

Sec.  902.  DISCHARGE  OF  SURETY  OR 
GUARANTOR  BY  FRAUD,  MISREPRESEN- 
TATION, CONCEALMENT,  ETC.— The  fraud, 
misrepresentation,  or  concealment,  by  the  creditor,  or 
by  the  principal  with  his  knowledge  or  consent,  of  ma- 
terial facts  which  would,  if  known  to  the  surety,  have 


nor  even  that  it  is  for  the  advantage  of  the  surety.  .  .  .  Non 
haec  in  foedera  veni  is  an  answer  in  the  mouth  of  the  surety  from 
winch  the  obligee  can  never  extricate  his  case,  however  innocently 
or  by  whatever  kind  intention  to  all  parties  he  may  have  been 
actuated."  (Lumpkin,  J.,  in  Bethune  v.  Dozier,  10  Ga.  235.) 
In  Nichols  v.  Palmer,  48  Wis.  110,  where  a  lease  with  surety 
thereon  was  for  three  years,  and  by  an  agreement  between  lessor 
and  lessee  it  was  changed  to  two  years,  the  surety  was  discharged. 
But  where  the  agreement  between  lessor  and  lessee  reduced  the 
rent  the  surety  was  not  discharged.  (Preston  v.  Huntington,  67 
Mich.  139.) 


210      SURETYSHIP  AND  GUARANTY. 

kept  him  from  signing  the  contract,  or  which  have  the 
effect  of  increasing  his  liability,  will  discharge  the 
surety  from  his  obligation.  (Monroe  v.  Anderson 
Bros.,  65  la.  692;  Putnam  v.  Schuyler,  4  Hun  166.) 

Thus  a  misrepresentation  as  to  the  use  to  which  the 
note  signed  by  the  surety  was  to  be  put,  was  held  to 
discharge  the  surety.  (Ham  v.  Greve,  34  Ind.  18.) 
And  if  the  surety's  signature  is  obtained  on  condition 
that  another  shall  also  sign  as  surety,  such  condition 
being  agreed  to  or  known  to  the  creditor  who  takes  the 
obligation,  if  unperformed,  it  will  discharge  the  surety. 
(Cowan  v.  Baird,  77  N.  C.  201.)  And,  in  general, 
where  the  surety  signs  upon  a  condition  such  condition 
must  be  complied  with  or  he  will  not  be  bound.  (Jones 
v.  Keer,  30  Ga.  93;  Brandt,  Sur.  &  Guar.,  Sec.  403.) 
This  rule  is  subject  to  the  exception  that  the  fraud  or 
misrepresentation  of  the  principal  in  inducing  the  surety 
to  sign  will  not  release  such  surety,  unless  the  creditor 
have  notice  of  the  fraud  or  of  the  condition  which  has 
not  been  fulfilled.  (Rothermal  v.  Hughes,  134  Pa. 
St.  510;  Whitcomb  v.  Miller,  90  Ind.  384.)  It  is  the 
misrepresentation  of  an  existing  fact,  and  not  of  a  mere 
unexecuted  intention  that  will  discharge  the  principal. 
So  where  the  retiring  partner  induced  the  other  to  as- 
sume the  debts  by  representing  that  he  wrould  forever 
retire  from  the  like  business,  and  did  not  do  so,  it  was 
held  not  to  be  such  a  fraud  as  would  discharge  the 
surety.      (Gage  v.  Lewis,  68  111.  604.) 

The  concealment  on  the  part  of  the  obligee  which 
will  work  a  discharge  of  the  surety  must  be  material, 


LIABILITY    OF    SURETY.  211 

that  is,  a  concealment  of  some  fact  or  circumstance  im- 
mediately affecting  the  liability  of  the  surety,  and  bear- 
ing directly  upon  the  particular  transaction  to  which  the 
suretyship  attaches.  (Brandt,  Sur.  &  Guar.,  Sec.  419; 
Comstock  v.  Gage,  91  111.  328.)  Where  it  is  the  duty 
of  a  person  having  knowledge  of  facts  to  disclose  them, 
concealment  or  failure  to  disclose  them  will  be  consid- 
ered fraudulent.  Thus  it  is  held  that  when  the  obligee 
knows  that  the  person  for  whose  acts  he  is  taking  se- 
curity is  a  defaulter  it  is  his  duty  to  inform  the  surety 
of  the  fact.  (Screwmen's  Ben.  Assoc,  v.  Smith,  70 
Tex.  168.)  A  bank  taking  a  bond  for  the  conduct  of 
a  person  in  their  employ  is  bound  to  disclose  the  fact 
if  he  is  known  to  have  made  default  before,  or  the 
surety  will  be  discharged.  (Franklin  Bank  v.  Cooper, 
39  Me.  542;  Third  Natl.  Bank  v.  Owen,  101  Mo.  558.) 
And  likewise  where  there  is  a  continuing  guaranty  for 
the  honesty  of  an  employee,  who  has  made  a  default,  he 
must  be  dismissed,  or  the  surety's  consent  secured  to 
his  being  retained  upon  full  notice  of  the  facts.  (Rob- 
erts v.  Donovan,  70  Cal.  108;  estate  of  Rapp  v.  The 
Phoenix  Ins.  Co.,  113  111.  390;  Dinsmore  v.  Tidball, 
34  Ohio  St.  411.) 

Sec.  903.  DISCHARGE  OF  SURETY  OR 
GUARANTOR  BY  CREDITOR  RELIN- 
QUISHING SECURITY.— It  is  an  equitable  prin- 
ciple arising  from  the  relation  of  principal  and  surety, 
that  the  property  of  the  principal  pledged  for  the  pay- 
ment of  his  debt,  should  be  applied  to  the  pay- 
ment of  such  debt  so  as  to  relieve  the  surety  from  lia- 


212      SURETYSHIP  AND  GUARANTY. 

bility,  and  the  creditor  having  property  pledged  to  him 
by  the  principal  for  this  purpose  by  relinquishing  his 
lien  upon  the  pledged  property  so  that  it  cannot  be 
applied  to  the  payment  of  the  debt  will  discharge 
the  surety.  (Port  v.  Robins,  35  la.  208.)  The  cred- 
itor holding  a  lien  or  pledge  of  property  of  the  prin- 
cipal is  regarded  as  a  trustee  of  the  property,  to  be 
applied  according  to  the  purpose  of  the  trust,  and  this 
is  tine  when  the  lien  is  secured  after  the  surety  has  be- 
come bound.  And  since  the  surety  by  paying  the  debt 
is  subrogated  to  all  the  securities  which  the  creditor  has 
at  the  time  for  the  payment  of  the  debt,  the  release 
of  any  part  of  such  security  by  the  creditor  is  such  a 
damage  to  the  surety  as  will  work  a  discharge  pro  tan  to 
of  his  obligation.  (Guild  v.  Butler,  127  Mass.  386; 
Cummings  v.  Little,  45  Me.  183.)  The  surety  may 
agree  to,  or  request  the  release  and  will  then  be  bound ; 
but  he  is  not  obliged  to  object  to  the  release  by  the 
creditor  if  he  has  knowledge  of  such  party's  intention. 
(Brown  v.  Abbott,  110  111.  162;  Polak  v.  Everett,  L. 
R.  1,  Q.  B.  Div.  669.) 

In  a  case  where  the  contractor  of  a  building  gave 
surety  to  the  owner  for  the  performance  of  his  contract, 
and  the  owner  was  to  pay  the  contract  price  in  various 
installments,  the  last  being  due  sixty  days  after  the 
completion  of  the  work,  it  was  held  that  such  owner 
having  knowledge  of  mechanics'  lien  suits  being  filed 
and  subsequently  paying  the  contractor  the  sums  due 
on  the  contract,  thereby  discharged  the  surety  under 


LIABILITY    OF    SURETY.  213 

the  principle  stated  above.  (Taylor  v.  Jeter,  23  Mo. 
244.) 

And  the  creditor  by  wasting  or  rendering  unavail- 
able the  mortgaged  security  of  the  principal  will 
thereby  discharge  the  surety.  (Phares  v.  Barbour,  49 
111.  370.)  If  the  creditor  by  relinquishing  security  for 
the  debt  materially  alters  the  contract  of  the  surety,  such 
surety  is  fully  discharged.  (Polak  v.  Everett,  supra; 
Watts  v.  Shuttleworth,  7H.&N.  353.)  If  the  surety's 
contract  is  not  changed,  he  is  only  released  to  the  ex- 
tent of  the  security  released.  (McMullen  v.  Hinkle, 
39  Miss.  142;  Brandt,  Sur.  &  Guar.,  Sec.  429.) 

The  creditor  must  have  a  lien  on  the  property  re- 
leased or  such  an  interest  in  it  as  will  charge  him  as 
trustee  if  the  release  is  to  operate  to  discharge  the 
surety.  And  where  the  release  of  the  property  by  the 
creditor  in  no  wise  injures  the  surety  or  alters  his  con- 
tract, it  will  not  discharge  the  surety.  (Brandt,  Sur. 
&  Guar.,  Sees.  430,  431;  Coates  v.  Coates,  33  Beav. 
249.)  Where  a  bank  holding  a  note  of  principal  and 
surety  receives  a  deposit  from  the  principal,  the  author- 
ities are  divided  as  to  its  duty  to  retain  such  money  and 
apply  it  to  the  payment  of  the  note.* 

The  release  by  the  creditor  of  a  valid  levy,  or  execu- 


*  Wilson  v.  Dawson,  52  Ind.  513,  is  a  case  where  the  money  of 
the  principal  was  deposited  on  a  special  agreement,  and  though 
sufficient  to  pay  a  note  with  surety  then  due  at  the  bank,  its 
being  paid  out  according  to  the  agreement  by  the  bank  did  not 
discharge  the  surety.  The  opposite  opinion  is  maintained  in 
several  cases.   (McDowell  v.  Bank,  1  Harr.  (Del.)  369.) 


214      SURETYSHIP  AND  GUARANTY. 

tion  against  the  property  of  the  principal,  by  which  the 
surety  loses  the  right  to  hold  the  property  for  the  pay- 
ment of  the  debt,  will  discharge  the  surety  to  the  value 
of  the  property  levied  upon.  (Dixon  v.  E wing's  Admr., 
3  Ohio  280.)  Likewise  the  release  by  the  creditor  of 
an  attachment  on  property  of  the  principal  to  the 
damage  of  the  surety  will  discharge  the  surety  pro  tanto, 
as  such  attachment  is  regarded  as  a  lien  held  by  the 
creditor  and  must  be  protected  for  the  benefit  of  the 
surety.  (City  of  Maquoketa  v.  Willey,  35  la.  323.) 
The  mere  dismissal  of  a  suit  by  the  creditor  against  the 
principal  in  which  no  attachment  or  other  lien  has  been 
secured  will  not  discharge  the  surety.  (Somerville  v. 
Marbury,  7  Gill  &  Johns  [Md.]  275.) 

When  there  are  several  sureties  liable  for  the  same 
debt,  and  the  creditor  releases  one  of  them  without  ma- 
terially altering  the  contract,  the  others  are  generally 
held  released  only  to  the  extent  that  such  released  surety 
would  have  been  liable  to  contribute  to  them.  ( Jemison 
v.  Governor,  47  Ala.  390;  Dodd  v.  Winn,  27  Mo.  501.) 

Sec.  904.  SAME  SUBJECT— NEGLIGENT 
LOSS  OF  COLLATERAL  SECURITY.— The 
creditor  being  held  to  be  a  trustee  of  the  property  of 
the  principal  in  his  hands  for  the  benefit  of  the  surety, 
his  negligence  or  carelessness  as  regards  such  property 
resulting  in  a  loss  will  discharge  the  surety  to  the  extent 
of  such  loss.  The  creditor  in  such  cases  must  use  due 
diligence  in  preserving  such  property  according  to  the 
circumstances  of  the  case.  As  regards  collateral  se- 
curity in  the  way  of  claims  or  obligations  against  third 


LIABILITY    OF    SURETY.  215 

parties,  the  creditor  is  bound  to  use  such  diligence  and 
take  such  steps  as  will  render  them  available  for  the 
purpose  for  which  they  were  assigned,  and  negligence 
or  inaction  resulting  in  a  loss  will  release  the  surety. 
(Crim  v.  Fleming,  101  Ind.  154;  Kemmerer  v.  Wilson, 
31  Pa.  St.  110.)  Thus  where  the  assignee  of  a  note  as 
collateral  security  was  notified  of  the  impending  insol- 
vency of  the  maker,  and  warned  to  sue  or  surrender  the 
note,  and  he  did  not  do  so,  the  debt  being  lost  he  was 
held  responsible  for  the  amount  of  the  note.  (Bonta 
v.  Curry,  3  Bush  678.)  And  where  the  creditor  had 
received  a  mortgage  on  personal  property  from  the 
principal  to  secure  a  note  previously  signed  by  a  surety, 
and  negligently  let  the  principal  dispose  of  such  mort- 
gaged property  he  thereby  discharged  the  surety. 
(City  Bank  v.  Young,  43  N.  H.  457.)  So  the  creditor 
who  has  a  lien  or  security  for  a  debt  will  discharge  the 
surety  by  not  taking  the  steps  necessary  to  preserve  or 
perfect  such  lien  on  the  principal's  property,  as  by  neg- 
lecting to  make  the  proper  parties  defendant  in  case 
of  the  death  of  the  principal  (Saulet  v.  Trepagnier,  2 
La.  Ann.  427) ,  or  to  record  a  mortgage.  (Burr  v.  Boyer, 
2  Neb.  265.)  But  the  creditor  is  not  required  to  pre- 
sent a  claim  to  the  personal  representatives  of  a  deceased 
principal,  and  though  the  remedy  is  lost  against  the 
estate  by  such  delay,  the  surety  will  not  be  discharged. 
It  being  said  that  the  creditor  is  under  no  greater  obli- 
gation to  present  his  claim  against  the  estate  than  he 
would  have  been  to  sue  the  principal  if  still  alive. 
(Brandt,  Sur.  &  Guar.,  Sec.  448.) 


CHAPTER  III. 

OF  THE  EIGHTS  OF  SURETIES  AND  GUARANTORS — 
CONTRIBUTION    AND    SUBROGATION. 

See.  90.5.  IN  GENERAL.— The  rights  of  sureties 
and  guarantors,  generally  speaking,  are  the  following: 
1.  The  right  to  indemnity  from  the  principal  on  pay- 
ment of  the  debt  or  obligation.  2.  The  rights  which 
they  have  against  the  creditor  at  law  and  in  equity  to 
prevent  the  creditor  from  doing  acts  to  their  prejudice, 
and  which  have  been  covered  in  the  preceding  chapter. 
3.  Rights  against  third  persons  to  hold  £>roperty  of  the 
principal  to  indemnify  them  against  prospective  or  pos- 
sible damage.  4.  Rights  as  against  each  other  for  con- 
tribution between  co-sureties.  5.  The  equitable  right 
to  be  subrogated  to  the  position  and  the  rights  of  the 
creditor  upon  payment  of  the  principal's  debt.  This 
chapter  will  be  devoted  to  a  brief  discussion  of  these 
rights  and  the  principles  governing  them. 

Sec.  906.  THE  RIGHT  TO  INDEMNITY 
FROM  THE  PRINCIPAL.— The  principal  being 
the  real  debtor,  and  the  guarantor  or  surety  only  being 
responsible  for  his  default,  the  law  implies  a  promise 
on  the  part  of  the  principal  to  indemnify  the  surety,  and 
a  right  of  action  immediately  accrues  to  the  surety  or 
guarantor  against  the  principal  upon  payment  of  the 
debt-  (Wilson  v.  Crawford,  47  la.  469;  Kimmel  v. 
Lowe,  28  Minn.  265.) 

216 


RIGHTS    OF    SURETIES.  217 

The  right  of  action  by  the  guarantor  or  surety 
against  the  principal  does  not  accrue  until  he  pays  the 
debt  of  the  principal.  (Cotton  v.  Alexander,  32  Kan. 
339;  In  re  Estate  of  Hill,  67  Cal.  238.)  This  being 
so,  the  surety  could  not  bring  an  attachment  or  hold 
property  in  his  hands  not  appropriated  for  the  payment 
of  the  debt,  until  he  had  actually  paid  the  debt.  (Den- 
nison  v.  Soper,  33  la.  183;  Ingalls  v.  Dennett,  6  Greenl., 
Me.  79. )  The  surety  may  pay  the  debt  before  due  and 
sue  the  principal  for  indemnity  after  it  has  become  due. 
(White  v.  Miller,  47  Ind.  385.)  The  action  for  in- 
demnity should  be  brought  in  the  name  of  the  surety 
and  not  in  the  name  of  his  obligee.  (Hardware  Co. 
v.  Deere,  etc.,  Co.,  53  Ark.  140.)  No  demand  or  notice 
need  be  made  or  given  to  the  principal  by  the  surety 
who  has  paid  the  debt  before  suit  is  brought  for  in- 
demnity. The  contract  of  indemnity  is  said  to  arise  at 
the  moment  when  the  surety  contracts  his  obligation, 
and  is  broken  the  moment  the  surety  is  damnified. 
(Ward  v.  Henry,  5  Conn.  595;  Brandt,  Sur.  &  Guar., 
Sec.  210.) 

The  surety  need  not  pay  the  debt  of  the  principal 
in  cash,  but  any  form  of  payment  accepted  by  the  cred- 
itor will  answer  to  support  his  right  to  sue  the  principal 
for  indemnity.  Thus  the  surety  may  pay  with  his  note, 
by  the  delivery  of  property,  or  a  mortgage  thereon  to 
the  creditor  will  constitute  a  payment.  ( Sapp  v.  Aiken, 
68  la.  699;  Peters  v.  Barnhill,  1  Hill,  Law  237;  Mc- 
Vicar  v.  Royce,  17  Up.  Can.  [Q.  B.]  529.)  A  few 
cases  hold  that  the  note  would  have  to  be  paid  before 


2V8      SURETYSHIP  AND  GUARANTY. 

the  surety  could  sue  the  principal  for  indemnity.  (Stone 
v.  Hammell,  83  Cal.  547.) 

But  where  the  surety  gets  a  compromise  from  the 
creditor  and  extinguishes  the  debt  for  less  than  its  full 
amount,  he  cannot  recover  from  the  principal  more  than 
the  amount  of  the  settlement  with  interest  and  costs. 
(Coggeshall  v.  Ruggles,  62  111.  401;  Hicks  v.  Bailey, 
16  Tex.  229;  Feamster  v.  Wilhrow,  12  W.  Va.  611.) 
To  recover  costs  made,  the  surety  must  have  had  reason 
for  making  them.  (Carpenter  v.  Minter,  72  Tex.  370.) 
So  the  surety  cannot  recover  indirect  or  consequential 
damages  for  his  loss  by  reason  of  having  to  pay  the  debt 
of  the  principal,  or  for  sacrificing  his  property,  or  for 
being  imprisoned,  but  simply  the  amount  actually  paid 
out  with  necessary  costs.  (Powell  v.  Smith,  8  Johns. 
249;  Vance  v.  Lancaster,  3  Haywood  [Tenn.]  130.) 
But  by  agreement  with  the  principal  he  may  recover  a 
stipulated  sum  for  the  use  of  his  credit.  (Perrine  v. 
Hotchkiss,  58  Barb.  77.) 

Sec.  907.  SAME  SUBJECT— OTHER  PRIN- 
CIPLES.— The  surety  may  pay  a  part  of  the  debt 
when  due,  or  pay  it  in  installments,  and  recover  after 
each  payment  a  like  sum  from  the  principal.  (Davies 
v.  Humphreys,  6  M.  &  W.  153.)  As  regards  the  prin- 
cipal's right  to  exemption  or  the  claim  of  third  parties 
to  the  j^rincipal's  property,  the  surety's  right  to  in- 
demnity relates  back  to  the  time  when  he  signed  the 
contract  and  became  surety,  and  his  equity  against  the 
principal's  property  will  be  protected  from  damage  by 
the  claims  of  subsequent  creditors.     (Barney  v.  Grover, 


RIGHTS    OF    SURETIES.  219 

28  Vt.  391;  Rice  v.  Southgate,  16  Gray  142.)  The 
surety's  action  against  the  principal  is  generally  that  of 
assumpsit,  and  if  there  are  two  or  more  principals, 
unless  stipulated  to  the  contrary,  the  surety  may  sue 
all  of  them,  or  any  one  of  them  for  indemnity.  ( Hulett 
v.  Soullard,  26  Vt.  295;  Babcock  v.  Hubbard,  2  Conn. 
536.)  Where  one  of  several  joint  guarantors  pays  the 
debt  he  may  maintain  an  action  against  the  principal. 
(Lowry  v.  Lumberman's  Bank,  2  Watts  &  Serg.  210.) 
A  payment  made  by  several  co-sureties  from  their  in- 
dividual money,  cannot  be  recovered  by  them  in  a  joint 
suit  against  the  principal.  (Sevier  v.  Roddie,  51  Mo. 
580.)  But  if  such  payment  is  made  from  a  joint  fund, 
as  where  the  sureties  borrow  the  money  on  a  joint  note, 
they  may  join  in  the  suit  for  indemnity.  (Pearson  v. 
Parker,  3  N.  H.  366.) 

A  mere  volunteer,  who  has  become  surety  without  the 
request  of  the  principal  express  or  implied,  cannot  com- 
pel indemnity  from  the  principal  upon  payment  of  the 
debt.     (Carter  v.  Black,  4  Dev.  &  Bat.  [N.  C]  425.) 

A  surety  who  pays  the  debt  of  the  principal  may 
recover  the  same  though  the  principal  has  been  dis- 
charged in  bankruptcy  or  under  an  insolvent  act,  unless 
such  act  expressly  includes  a  provision  for  the  adjust- 
ment of  claims  of  sureties  liable  at  the  time  of  the  dis- 
charge. (Cake  v.  Lewis,  8  Pa.  St.  493;  Lipscomb  v. 
Grace,  26  Ark.  231.)  But  a  discharge  of  the  principal 
after  the  debt  has  been  paid  by  the  surety  will  bar  the 
claim  of  the  surety  for  indemnity.  ( Smith  v.  Kinney, 
6  Neb.  447.), 


220      SURETYSHIP  AND  GUARANTY. 

The  surety  may  without  paying  the  debt,  and  even 
before  called  upon  to  pay  by  the  creditor,  file  a  bill  in 
equity  praying  that  the  principal  be  compelled  to  pay 
the  debt.  (Phila.  &  Reading  R.  R.  Co.  v.  Little,  41 
N.  J.  Eq.  519.)  And  where  the  contract  of  surety 
with  the  principal  expressly  provides  that  the  surety 
shall  be  saved  harmless  from  liability  as  well  as  indem- 
nified, he  may  maintain  an  action  at  law  against  the 
principal  without  paying  the  debt.  (Belloni  v.  Free- 
born, 63  N.  Y.  383.)  In  equity  the  surety  may  fore- 
close a  mortgage  on  the  property  of  the  principal  be- 
fore paying  the  debt  from  his  own  money.  (Kramer 
v.  Farmers'  Mechanics  Bank,  15  Ohio  253.) 

The  surety  must  take  care  that  the  principal  is  liable 
for  the  debt  he  pays,  or  he  cannot  recover  indemnity. 
(Hollinsbee  v.  Ritchey,  49  Ind.  261.)  The  claim  to 
indemnity  being  valid,  the  surety  may  set-off  such  claim 
against  a  demand  which  the  administrator  of  the  in- 
solvent estate  of  the  deceased  principal  may  have 
against  him.  (Beaver  v.  Beaver,  23  Pa.  St.  167.)  And 
the  surety  may  purchase  property  of  the  principal  sold 
on  execution  by  reason  of  a  joint  judgment  against 
him  and  the  principal.     (Carlos  v.  Ansley,  8  Ala.  900.) 

The  claim  of  the  surety  for  indemnity  against  the 
principal  may  be  barred  by  the  statute  of  limitations. 
The  statute  is  held  generally  to  begin  to  run  from  the 
time  of  the  payment  of  the  debt  by  the  surety  and  not 
from  the  time  that  the  debt  becomes  due.  (Thayer  v. 
Daniels,  110  Mass.  345.)  But  where  the  creditor  has 
a  judgment  against  the  principal,  which  is  assigned  to 


RIGHTS    OF    SURETIES.  221 

the  surety  on  payment  of  the  debt,  the  surety  may  re- 
cover indemnity  for  the  payment  of  the  judgment 
though  the  recovery  on  the  original  debt  would  have 
been  barred  by  the  statute  of  limitations.  (Morrison 
v.  Page,  9  Dana  [Ky.]  428.) 

Sec.  908.  RIGHTS  OF  THE  SURETY  OR 
GUARANTOR  AGAINST  THE  CREDITOR.— 
This  topic  would  include  the  different  acts  of  the  cred- 
itor which  prejudice  the  surety  and  operate  to  discharge 
him,  as  giving  time  to  the  principal,  and  the  like,  which 
were  discussed  in  the  preceding  chapter.  In  addition 
to  these  rights  of  the  surety,  by  the  weight  of  authority 
it  is  held  that  the  surety  may  set-off  a  debt  due  by  the 
creditor  to  the  principal  when  sued  by  the  creditor  on 
the  suretyship  obligation.  (Andrews  v.  Varrell,  46  N. 
H.  17;  Hollister  v.  Davis,  54  Pa.  St.  508;  Coffin  v. 
McLean,  80  N.  Y.  560.)  The  contrary  of  this  rule  is 
held  in  a  number  of  cases.  (Gillespie  v.  Torrance,  25 
N.  Y.  306;  Thalheimer  v.  Crow,  13  Col.  397.) 

In  some  States,  as  Ohio,  it  is  provided  by  statute  that 
the  surety  may  compel  the  creditor  to  proceed  against 
the  principal  on  notice  to  him,  after  the  debt  is  due. 
There  is  also  a  number  of  authorities  holding  the 
surety  may,  in  the  absence  of  a  statutory  provision,  by 
verbal  or  written  notice  to  the  creditor  demand  that  he 
sue  the  principal,  and  if  this  is  not  done,  and  the  prin- 
cipal becomes  insolvent  thereafter,  the  surety  will  be 
discharged.  (King  v.  Baldwin,  17  Johns.  384;  Col- 
grove  v.  Tallman,  67  N.  Y.  95.)  But  the  great  ma- 
jority of  cases  hold  that  the  creditor  need  not  comply 


222      SURETYSHIP  AND  GUARANTY. 

with  such  notice  from  the  surety  in  the  absence  of  a 
statute  providing  for  it.  (Jenkins  v.  Clarkson,  7  Ohio 
72;  Halstead  v.  Brown,  17  Ind.  202;  Inkster  v.  Natl. 
Bank,  30  Mich.  143;  Dane  v.  Corduan,  24  Cal.  157.) 

Sec.  909.  RIGHTS  OF  SURETY  OR  GUAR- 
ANTOR AGAINST  THIRD  PERSONS.— As 
against  third  persons  the  surety  has  a  right  to  hold  prop- 
erty of  the  principal  mortgaged  to  him  for  his  indemnity 
before  the  debt  is  due  or  paid,  or  take  a  conveyance  of 
property  from  the  principal  on  agreeing  to  pay  the 
debt.  (McWhorter  v.  Wright,  5  Ga.  555;  Bellume  v. 
Wallace,  2  Rich.  Law  [S.  C]  80.)  A  judgment  lien 
of  the  surety  against  the  principal  obtained  before  pay- 
ing the  debt  is  valid  against  the  claims  of  creditors  of 
the  principal.     (Miller  v.  Howry,  3  Pen.  &  Watts  327.) 

Sec.  910.  OF  THE  RIGHT  TO  CONTRIBU- 
TION.— Where  there  are  two  or  more  sureties  equally 
liable  for  the  debt  of  the  principal,  and  one  of  them 
pays  the  debt,  he  may  compel  "contribution,"  or  a 
payment  of  their  just  share  from  each  of  the  other 
sureties  who  are  equally  liable,  called  co-sureties.  The 
creditor  is  not  bound  to  look  to  all  the  sureties  jointly, 
but  may  compel  payment  from  any  one,  and  his  elec- 
tion to  do  so  gives  rise  to  the  principle  of  contribution.* 


♦"Natural  justice  says  that  one  surety,  having  become  so  with 
other  sureties,  shall  not  have  the  whole  debt  thrown  upon  him 
by  the  choice  of  the  creditor,  in  not  resorting  to  remedies  in  his 
power,  without  having  contribution  from  those  who  entered  into 
the  obligation  equally  with  him.  The  obligation  of  co-sureties 
to  contribute  to  each  other  is  not  founded  in  contract  between 


RIGHTS    OF    SURETIES.  223 

The  surety  to  enforce  contribution  from  the  co-sure- 
ties, must  have  paid  the  debt,  but  he  need  not  wait  until 
judgment  has  been  taken  against  him  before  paying. 
(Backus  v.  Coyne,  45  Mich.  584;  Bright  v.  Lennon, 
83  N.  C.  183.) 

Sec.  911.  SAME  SUBJECT— WHO  ARE  CO- 
SURETIES.—Where  all  of  the  sureties  sign  the  same 
instrument  and  become  equally  liable  thereon,  there  is 
no  question  of  their  being  co-sureties.  But  there  may  be 
two  or  more  sureties  for  the  same  principal  who  are  not 
co-sureties.  If  several  persons  become  bound  for  the 
same  duty  or  obligation  of  the  same  principal,  though 
at  different  times,  by  different  instruments  and  without 
the  knowledge  of  each  other,  yet  they  are  generally  con- 
sidered as  co-sureties.  (Wood worth  v.  Bowes,  5  Ind. 
276;  Deering  v.  Earl  of  Winchelsea,  2  Bos.  &  Pul.  270; 
Pickens  v.  Miller,  83  N.  C.  543.)  In  the  last  case  an 
administrator  who  had  given  bond  when  first  appointed, 
eight  years  afterwards  gave  an  additional  bond  with 
other  sureties,  and  both  sets  of  sureties  were  held  to  be 
co-sureties.    But  where  an  officer  held  over  his  term  and 


them,  but  stood  upon  a  principle  of  equity  until  that  principle  of 
equity  had  been  so  long  and  so  generally  acknowledged  and  en- 
forced, that  persons  in  placing  themselves  under  circumstances  to 
which  it  applies  may  be  supposed  to  act  under  the  dominion  of 
contract,  implied  from  the  universality  of  that  principle.  For  a 
great  length  of  time  equity  exercised  its  jurisdiction  exclusively 
and  individually;  the  jurisdiction  assumed  by  courts  of  law  is 
comparatively  of  very  modern  date."  (Bibb,  C.  J.,  in  Lansdale 
v.  Cox,  7  T.  B.  Monr.  401.  See  also:  Van  Winkle  v.  Johnson, 
11  Ore.  469;  Jeffries  v.  Ferguson,  87  Mo.  244.) 


224      SURETYSHIP  AND  GUARANTY. 

gave  bond  for  the  full  term,  and  then  being  re-elected 
gave  bond  for  the  expiration  of  the  term  with  new  sure- 
ties, the  sureties  on  the  different  bonds  were  held  not 
to  be  co-sureties.  (Boone  Co.  v.  Jones,  58  la.  373.) 
And  where  a  person  signing  a  note  after  the  principal 
and  surety  had  signed,  added  to  his  signature,  "security 
for  the  above  parties,"  he  was  held  not  to  be  a  co-surety, 
since  he  had  qualified  his  contract  so  as  to  become  a 
surety  for  the  whole,  after  the  other  two.  (Harris  v. 
Warner,  13  Wend.  400.)  So,  by  the  weight  of  author- 
hy,  successive  accommodation  indorsers  of  negotiable 
instruments  are  not  co-sureties,  in  the  absence  of  an 
agreement  to  that  effect.  (Brandt,  Sur.  &  Guar.,  Sec. 
260;  Hillegas  v.  Stephenson,  75  Mo.  118;  McGurk  v. 
Huggett,  56  Mich.  187.)  Parol  evidence  may  be  in- 
troduced to  show  that  the  indorser  of  a  promissory  note 
is  a  co-surety  with  the  surety  signing  with  the  maker. 
(Nurre  v.  Chittenden,  5G  Ind.  462.)  And  it  is  a  gen- 
eral rule  that  parol  evidence  will  be  admitted  to  show 
the  real  relation  subsisting  between  several  parties 
bound  for  the  performance  of  a  written  obligation. 
And  a  parol  agreement  of  one  surety  to  indemnify  the 
other  may  be  shown  to  defeat  the  right  to  contribution. 
(Brandt,  Sur.  &  Guar.,  Sec.  261;  Craythome  v.  Swin- 
burne, 14  Ves.  160.) 

When  legal  proceedings  have  been  commenced 
against  the  principal  for  the  collection  of  the  debt, 
and  a  new  surety  becomes  bound  at  such  time  for  the 
payment  of  the  debt,  he  is  not  regarded  as  a  co-surety, 
but  as  a  surety  for  the  principal  from  whom  the  original 


RIGHTS    OF    SURETIES.  225 

surety  may  collect  the  debt  after  payment  on  default 
of  the  principal.  (Friberg  v.  Donovan,  23  111.  App. 
58.) 

Where  one  of  the  sureties  has  done  something  that 
would  make  it  inequitable  for  him  to  recover  contribu- 
tion from  the  other  surety,  contribution  will  not  be  en- 
forced, since  it  is  an  equitable  right  in  its  foundation, 
and  he  who  would  have  equity  must  do  what  equity  de- 
mands. (Dennis  v.  Gillespie,  24  Miss.  581.)  Where 
one  of  the  sureties  by  stifling  competition  bought  the 
land  of  the  principal  for  less  than  it  was  worth,  and  on 
payment  of  the  debt,  he  was  held  not  entitled  to  con- 
tribution from  the  co-surety.  So  the  surety  who  be- 
comes so  at  the  request  of  another  upon  promise  of  in- 
demnity, is  not  a  co-surety  from  whom  contribution  can 
be  enforced.  (Turner  v.  Davies,  3  Esp.  478.)  Like- 
wise the  surety  of  a  surety  is  not  a  co-surety,  and  is 
not  generally  liable  to  contribution.  (Adams  v.  Flan- 
nagan,  36  Vt.  400.) 

Sec.  912.  SAME  SUBJECT— OTHER  PRIN- 
CIPLES CONCERNING  CONTRIBUTION.— 
When  one  of  several  co-sureties  afterwards  becomes  the 
principal  by  assignment,  with  the  knowledge  and  consent 
of  the  other  sureties,  he  is  no  longer  a  co-surety,  but 
liable  for  the  whole  debt  to  a  co-surety  who  has  been 
compelled  to  pay  it.  (Gray  v.  McDonald,  19  Wis.  213.) 

In  the  case  of  a  co-surety,  as  in  the  case  of  an  indi- 
vidual surety,  care  must  be  taken  on  paying  the  debt  to 
see  that  the  principal  and  the  other  sureties  are  liable, 
for  if  they  are  not  contribution  cannot  be  recovered. 


22G      SURETYSHIP  AND  GUARANTY. 

(Russell  v.  Failor,  1  Ohio  St.  327.)  Indemnity  from 
the  principal  secured  by  one  co-surety  after  all  signed 
and  before  the  debt  has  been  paid,  and  without  any  pre- 
vious agreement  for  indemnity,  inures  to  the  benefits  of 
all  the  sureties,  and  the  holder  is  a  trustee  for  all.  ( Sei- 
bert  v.  Thompson,  8  Kans.  65 ;  McCune  v.  Belt,  45  Mo. 
174.)  Such  a  surety  on  paying  the  debt  out  of  the  in- 
demnity fund,  could  recover  from  the  co-surety  one-half 
the  amount  remaining  after  exhausting  the  fund.  ( Cur- 
xier  v.  Fellows,  27  N.  H.  306.)  The  surety  with  in- 
demnity must  not  release  his  lien  or  negligently  lose  it, 
or  he  will  thereby  discharge  his  co-surety  to  the  extent 
that  he  is  injured.  (Ramsey  v.  Lewis,  30  Barb.  403; 
Carpenter  v.  Kelly,  9  Ohio  106.)  If  a  co-surety  obtain 
indemnity  from  the  principal  after  the  debt  has  been 
paid  by  the  co-sureties  in  equal  proportion,  it  is  for  his 
individual  benefit,  since  the  payment  by  each  of  his  pro- 
portion annulled  the  equitable  right  to  contribution, 
and  each  became  a  separate  creditor  of  the  principal. 
(Harrison  v.  Phillips,  46  Mo.  520.) 

Sec.  913.  SAME  SUB JECT— OTHER  EQUIT- 
ABLE RIGHTS  AGAINST  CO-SURETIES.— A 
surety  who  is  called  upon  to  pay  the  debt  may  before 
paying  file  a  bill  in  equity  to  compel  his  co-surety  to 
contribute  to  the  payment,  and  also  in  a  proper  case  re- 
strain such  co-surety  from  disposing  of  his  property 
until  the  joint  obligation  was  discharged.  (Brandt, 
Sur.  &  Guar.,  Sec.  275.) 

Where  one  of  two  co-sureties  consents  to  give  time 
to  the  principal,  and  the  other  does  not,  and  the  one 


RIGHTS    OF    SURETIES. 

consenting  afterwards  has  to  pay  the  debt,  he  cannot 
enforce  contribution,  since  he  is  regarded  as  standing 
in  the  shoes  of  the  creditor  and  affected  in  the  same  way 
by  giving  time  to  the  principal.  ( Cameron  v.  Boulton, 
9  Up.  Can.  [C.  P.]  537.)  Costs  and  expenses  may  be 
recovered  in  an  action  for  contribution,  where  they  were 
made  in  the  interests  of,  or  by  the  common  neglect  of, 
the  several  sureties.  (Davis  v.  Emerson,  17  Me.  64; 
Fletcher  v.  Jackson,  23  Vt.  581.) 

The  proportion  which  the  co-surety  may  recover 
from  each  of  the  others  in  an  action  for  contribution, 
is  a  pro  rata  amount  of  the  sum  paid  by  him  ascertained 
by  dividing  the  whole  amount  by  the  number  of  solvent 
co-sureties.  (Burroughs  v.  Lott,  19  Cal.  125.)  This  is 
the  equitable  rule.  At  law,  as  a  general  rule,  the  surety 
can  recover  from  the  solvent  co-sureties  only  their  pro- 
portionate share  ascertained  by  dividing  the  whole  sum 
paid  by  the  whole  number  of  sureties,  regardless  of  those 
who  are  insolvent.  ( Acers  v.  Curtis,  68  Tex.  423. )  Where 
the  co-sureties  are  bound  in  different  amounts  for  the 
same  obligation,  as  where  one  is  bound  for  $2,000  and 
another  for  $18,000,  and  a  default  is  made  for  $2,000, 
they  are  liable  in  proportion  to  the  amount  of  the  obliga- 
tion signed  by  them,  and  the  one  liable  for  $2,000  can 
recover  eight-ninths  of  the  amount  from  the  other.  ( Ar- 
mitage  v.  Pulver,  37  N.  Y.  494.) 

The  suit  for  contribution  may  be  brought  at  law  or 
in  equity.  (Broughton  v.  Wimberly,  65  Ala.  549.) 
Where  two  or  more  co-sureties  jointly  pay  the  debt,  they 
may  join  in  a  suit  for  contribution,  but  if  each  pays  sep- 


228      SURETYSHIP  AND  GUARANTY. 

arately  they  cannot  join  in  such  action.  (Dussol  v. 
Brugniere,  50  Cal.  456;  Lombard  v.  Cobb,  14  Me.  222.) 
When  each  pays  separately  they  have  separate  actions 
against  the  co-surety  for  indemnity.  (Atkinson  v. 
Steward,  2  B.  Monr.  348.)  Since  the  insolvent  co- 
sureties are  not  considered  when  contribution  is  asked 
in  an  equity  court,  they  are  not  considered  necessary 
parties,  neither  is  the  insolvent  principal  nor  the  repre- 
sentatives of  insolvent  deceased  co-sureties  necessary 
parties.     (Brandt,  Sur.  &  Guar.,  Sec.  292.) 

Sec.  914.  SUBROGATION  AN  EQUITABLE 
RIGHT.— "The  right  of  the  surety  to  demand  of  the 
creditor  whose  debt  he  has  paid,  the  securities  he  holds 
against  the  principal  debtor,  and  to  stand  in  his  shoes, 
does  not  depend  at  all  upon  any  request  or  contract  on 
the  part  of  the  debtor  with  the  surety,  but  grows  rather 
out  of  the  relations  existing  between  the  surety  and  the 
creditor,  and  is  founded  not  upon  any  contract,  express 
or  implied,  but  springs  from  the  most  obvious  principles 
of  natural  justice."* 

Subrogation,  by  which  is  meant  the  right  of  the  surety 
or  guarantor  upon  payment  of  the  debt  of  the  principal 
to  the  creditor,  to  be  substituted  for,  or  placed  in  the 
position  of  the  creditor  as  regards  all  securities,  liens,  or 
other  advantages  which  the  creditor  is  holding  against 
the  principal,  is  strictly  an  equitable  doctrine,  and  must 
be  enforced  in  a  court  of  equity.  (Smith  v.  Harrison, 
33  Ala.  706.)     While  a  mere  stranger  or  volunteer  can- 


*  Johnson,  J.,  in  Mathew  v.  Aiken,  1  N.  Y.  595. 


RIGHTS    OF    SURETIES.  229 

not  by  the  payment  of  the  debt  of  another  be  entitled 
to  subrogation,  the  surety  or  guarantor  of  a  debt  is  en- 
titled to  subrogation  upon  payment  of  the  debt  without 
any  stipulation  for  it.  (Burton  v.  Mill,  78  Va.  468; 
Miller  v.  Stout,  5  Del.  Ch.  259.)  The  payment  by  the 
surety  discharges  the  debt  as  to  the  creditor  but  it  re- 
mains in  force  as  to  such  surety  against  the  debtor,  and 
equity  by  the  doctrine  of  subrogation,  aims  to  compel 
the  party  in  duty  bound  to  pay  the  debt  to  do  so,  hence 
it  transfers  to  the  surety  paying,  the  original  evidences 
of  the  debt,  any  judgment  in  which  the  debt  has  been 
merged,  all  collateral  securities  or  liens  held  by  the  cred- 
itor, and  a  right  to  compel  their  assignment  to  him  from 
the  creditor.  (Dunphy  v.  Gorman,  29  111.  App.  132; 
McCormick's  Admrs.  v.  Irwin,  35  Pa.  St.  111.) 

Sec.  915.  PREREQUISITES  TO  THE  RIGHT 
OF  SUBROGATION.— All  persons  who  occupy  the 
situation  of  sureties  or  guarantors,  whether  technically 
called  such  or  not,  are,  without  doing  any  act  signifying 
their  intention  to  elect  or  accept  the  privileges  of  the 
right,  subrogated  to  the  rights  of  the  creditor  against  the 
principal  upon  payment  of  the  debt.  (Frow,  Jacobs  & 
Co.'s  Estate,  73  Pa.  St.  459;  Brandt,  Sur.  &  Guar.,  Sec. 
299.)  If,  by  laches  or  delay  in  asserting  the  right  of 
subrogation  the  surety  has  allowed  others  to  secure  bona 
fide  claims  to  the  property,  he  will  be  held  to  have  lost 
his  right.     (Gring's  Appeal,  89  Pa.  St.  336.) 

The  surety  must  generally  pay  the  debt  of  the  princi- 
pal to  be  entitled  to  subrogation,  but  the  form  of  pay- 
ment is  unimportant,  and  he  may  pay  by  note  and  en- 


230      SURETYSHIP  AND  GUARANTY. 

force  subrogation  though  the  notes  given  in  payment  are 
not  paid.  (Stedman  v.  Freeman,  15  Ind.  80.)  The 
surety  upon  being  subrogated  to  the  rights  of  the  cred- 
itor stands  in  his  place,  and  cannot  claim  any  greater 
rights  than  the  creditor  would  have  had.  So  the  surety 
may  waive  his  right  to  subrogation.  (Tyus  v.  De  Jar- 
nette,  26  Ala.  280.)  The  surety  being  entitled  to  subro- 
gation to  all  the  securities  which  the  creditor  acquires 
from  the  principal,  a  release  of  such  securities  by  the 
creditor  or  their  negligent  loss  by  him,  will  discharge 
the  surety  to  the  extent  that  such  securities  would  have 
paid  the  debt  of  the  principal.  (Nelson  v.  Munch,  28 
Minn.  314.) 

Sec.  916.  HOW  THE  RIGHT  TO  SUBROGA- 
TION ENFORCED.— The  surety  upon  payment  of 
the  debt  to  the  creditor,  may  compel  the  creditor  to  as- 
sign to  him  all  the  securities  or  obligations  of  the  princi- 
pal which  he  may  have,  if  they  are  not  voluntarily  given 
up  by  the  creditor.  (Morgan  v.  Seymour,  1  Reports  in 
Ch.  120;  Springer's  Admr.  v.  Springer,  43  Fa.  St.  518.) 

Sec.  917.  WHEN  SUBROGATION  WILL  BE 
ALLOWED. — In  general,  to  be  entitled  to  subroga- 
tion, the  surety  must  have  paid  the  whole  debt,  and  a 
part  payment  will  not  give  him  the  benefit  of  subroga- 
tion, as  this  would  give  separate  interest  in  the  same  debt 
to  surety  and  creditor.  (Hollingsworth  v.  Floyd,  2 
Har.  &  Gill.  [Md.]  87.)  And  subrogation  will  not  be 
allowed  when  it  would  be  inequitable,  or  to  the  prejudice 
of  a  creditor  in  reference  to  the  debt  for  which  the  surety 
is  liable.     (Crump  v.  McMurtry,  8  Mo.  408;   Henley 


RIGHTS    OF    SURETIES.  231 

v.  Stemmons,  4  B.  Monr.  131.)  Though  the  debt  is 
paid  to  the  creditor,  it  is  still  regarded  as  subsisting  so 
far  as  may  be  necessary  to  support  the  assignment  of 
collateral  security  held  by  such  creditor  to  the  surety. 
This  is  regarded  as  an  imperative  exception  to  the  rule 
that  payment  discharges  a  debt  as  against  the  co-debtors 
in  order  to  make  subrogation  possible  and  practicable. 
If  the  debt  was  held  to  be  entirely  discharged,  all  the 
collateral  securities  held  by  the  creditor  would  be  like- 
wise discharged,  and  their  assignment  to  the  surety 
would  be  defeated.  (Edgerly  v.  Emerson,  23  N.  H. 
555.)  So  for  the  purpose  of  obtaining  indemnity  from 
the  principal,  the  surety  after  payment  is  regarded  as 
at  once  subrogated  to  all  the  rights,  remedies  and  securi- 
ties of  the  creditor  and  entitled  to  all  his  liens,  priorities 
and  means  of  payment  against  the  principal.  (Brandt, 
Sur.  &  Guar.,  Sec.  304.) 

By  taking  a  separate  indemnity  from  the  principal 
for  his  security  with  knowledge  that  the  creditor  holds 
a  mortgage  given  by  the  principal  to  secure  the  debt, 
the  surety  is  held  to  lose  his  right  to  subrogation.  (Coop- 
er v.  Jenkins,  32  Beav.  337.)  Other  cases  hold  that  the 
surety  may  be  subrogated  to  after  acquired  securities 
by  the  creditor  though  he  has  taken  a  separate  in- 
demnity.    (Brandt,  Sec.  307.) 

A  surety  who  becomes  such  during  the  prosecution 
of  a  remedy  for  the  debt  against  the  principal  is  not 
entitled  to  subrogation,  at  least  as  regards  any  prior 
surety,  or  prior  interest  in  the  property  which  he  seeks 


232      SURETYSHIP  AND  GUARANTY. 

to  reach  by  subrogation.  (Patterson  v.  Pope,  5  Dana 
[Ky.]  241.) 

Subrogation  extends  to  enable  the  surety  paying  to 
enforce  the  rights  of  the  creditor  against  a  co-surety. 
While  equity  restrains  a  surety  from  collecting  more 
from  any  co-surety  than  his  just  proportion,  the  right  of 
subrogation  allows  him  to  collect  that  much  the  same 
as  the  creditor  might  do  it.  (Lidderdale  v.  Robinson, 
2  Brock.  159.) 

Sec.  918.  SAME  SUBJECT— IN  CASE  OF  A 
JUDGMENT.— As  regards  the  right  of  the  surety 
who  pays  the  debt  after  the  same  has  been  reduced  to 
a  judgment  to  be  subrogated  to  such  judgment,  there 
is  a  conflict  among  the  authorities.  If  the  payment  is 
made  with  intention  of  extinguishing  the  judgment  it 
will  of  course  have  that  effect  and  defeat  subrogation. 
But  if  no  such  intention  appears  the  better  opinion  is 
said  to  be,  that  the  judgment  is  discharged  as  regards 
the  creditor's  personal  rights  thereto,  but  kept  alive  as 
between  all  parties  for  the  purpose  of  enforcing  the 
rights  of  the  surety.  In  the  absence  of  apparent  in- 
tention in  the  payment  it  will  be  presumed  to  be  the 
intention  of  the  surety  to  keep  the  judgment  alive  for 
subrogation  thereunder.  (Neilson  v.  Fry,  16  Ohio  St. 
376;  Richter  v.  Cummings,  60  Pa.  St.  441;  Brandt, 
Sur.  &  Guar.,  Sec.  310.)  So  it  is  held  that  if  the  surety 
pays  the  amount  of  the  judgment  and  takes  an  assign- 
ment of  it,  he  may  be  subrogated  to  the  rights  of  the 
creditor  under  it,  since  his  intention  not  to  extinguish 
the  judgment  is  manifested  by  the  assignment.     (Neal 


RIGHTS    OF    SURETIES.  233 

v.  Nash,  23  Ohio  St.  483;  Thompson  v.  Palmer,  3  Rich. 
Eq.  139.)  But  there  are  cases  which  deny  the  right  of 
a  surety  to  be  subrogated  to  a  judgment  which  he  has 
paid  for  the  principal,  it  being  considered  as  exting- 
uished by  such  payment,  and  this  has  been  held  in  cases 
where  the  surety  took  an  assignment  of  such  judgment 
when  paying  it.  (Laval  v.  Rowley,  17  Ind.  36;  Tiddy 
v.  Harris,  101  N.  C.  589;  Chandler  v.  Higgins,  109  111. 
602.) 

So  by  the  weight  of  authority  the  surety  who  pays 
a  specialty  debt  of  the  principal,  that  is,  one  under  seal, 
is  entitled  to  rank  as  a  specialty  creditor  being  subro- 
gated to  the  right  of  the  former  creditor,  unless  a  con- 
trary intention  is  manifested  at  the  time  of  the  payment. 
(Lumpkin  v.  Mills,  4  Ga.  343.) 

Sec.  919.  EXTENT  OF  THE  RIGHT  OF 
SUBROGATION.— The  surety  entitled  to  subroga- 
tion is  generally  entitled  to  all  the  securities  which  the 
creditor  may  hold,  this  is  said  to  be  the  equitable  prin- 
ciple and  based  on  natural  justice.  "A  note,  bond, 
mortgage,  pledge  and  judgment  are  all  equally  securi- 
ties for  the  debt  and  collateral  to  it.  If  the  payment 
by  the  surety  extinguishes  one  of  them,  why  does  it  not 
extinguish  them  all?  The  reasoning  which  makes  a 
distinction  is  highly  technical  and  certainly  has  no 
foundation  in  equity."  (Brandt,  Sur.  &  Guar.,  Sec. 
314,  citing  Gerber  v.  Sharp,  72  Ind.  553.)  In  England, 
by  the  Mercantile  Law  Amendment  Act  (19  and  20 
Victoria,  ch.  97,  sec.  5),  parliament  has  provided  that 
the  surety  upon  payment  shall  have  the  right  to  have 


234      SURETYSHIP  AND  GUARANTY. 

assigned  to  him  or  a  trustee  for  him,  "every  judgment, 
specialty  or  other  security  which  shall  be  held  by  the 
creditor,"  and  this  whether  the  judgment  is  deemed 
satisfied  at  law  by  the  payment  or  not. 

The  surety  is  entitled  to  be  subrogated  to  the  rights 
under  a  mortgage  given  by  the  principal  to  the  creditor 
in  respect  to  the  debt,  and  may  with  or  without  a  formal 
assignment  of  such  mortgage  have  it  foreclosed,  in  his 
own  name,  and  apply  the  proceeds  to  indemnify  him- 
self. (Gossin  v.  Brown,  11  Pa.  St.  527;  McLean  v. 
Towle,  3  Sandf.  Ch.  117;  Beaver  v.  Slanker,  94  111. 
175.) 

And  it  is  held  that  a  party  indemnifying  the  surety, 
and  who  has  paid  the  debt  for  which  the  surety  was 
bound,  is  entitled  to  subrogation  to  the  same  extent  as 
the  surety  would  have  been.  (Rittenhouse  v.  Levering, 
6  Watts  &  Serg.  190.) 

So  a  third  person  taking  property  of  the  principal 
charged  with  the  lien  of  the  surety  on  subrogation  will 
be  regarded  as  a  trustee  of  such  property  and  subject 
to  all  the  equities  which  the  surety  acquires  by  subroga- 
tion, if  taken  with  notice  of  the  facts.  (Drew  v.  Lock- 
ett,  32  Beav.  499.) 

The  sureties  of  officers,  administrators,  guardians, 
and  the  like,  are  entitled  to  be  subrogated  to  such  rights 
as  the  obligee  may  have  against  the  principal.  And  the 
sureties  of  a  guardian  may  be  subrogated  to  the  reme- 
dies of  the  ward  against  such  guardian  before  judgment 
and  execution  against  him,  if  they  are  legally  bound  to 
pay,  or  where  the  principal  is  insolvent  before  payment. 


RIGHTS    OF    SURETIES.  235 

(Brandt,  Sur.  &  Guar.,  Sees.  317-319;  Fishback  v. 
Weaver,  34  Ark.  569.)  To  be  subrogated  to  the  lien 
of  the  State  or  county,  where  such  lien  is  statutory, 
the  surety  must  allege  and  prove  their  right  of  subroga- 
tion and  the  extent  of  it.  (Watts  v.  Eufaula  Natl. 
Bank,  76  Ala.  474.)  Otherwise  the  surety  is  entitled  to 
be  subrogated  to  the  rights  of  the  State  or  county  and 
have  them  enforced  for  his  benefit  as  in  the  case  of  in- 
dividual creditors.     (Boltz's  Estate,  133  Pa.  St.  77.) 

A  surety  for  a  part  of  a  debt  is  not  entitled  to  be 
subrogated  to  a  security  given  the  creditor  by  the  prin- 
cipal at  another  time,  and  for  a  separate  and  distinct 
part  of  the  same  debt.  (Wade  v.  Coope,  2  Simons  155.) 
And  it  is  held  that  the  surety  will  receive  the  creditor's 
right  to  set  aside  a  fraudulent  conveyance  by  the  prin- 
cipal of  his  property,  though  such  conveyance  was  made 
before  the  surety  paid  the  debt.  (Tatum  v.  Tatum,  1 
Ired.  Eq.  113.) 

Sec.  920.  WHEN  CREDITOR  ENTITLED 
TO  SECURITIES  HELD  BY  THE  SURETY. 
— Securities  given  by  the  principal  to  the  surety  for 
indemnity  against  the  payment  of  the  debt,  are  general- 
ly subject  to  the  equitable  claim  of  the  creditor  and  may 
be  taken  for  his  indemnity,  though  they  did  not  influence 
him  in  giving  credit  to  the  principal,  or  were  not  known 
of  by  him.  (Kramer  &  Rahm's  Appeal,  37  Pa.  St.  71; 
Owens  v.  Miller,  29  Md.  144.)  The  creditor  may  take 
such  security  without  having  exhausted  his  remedies  at 
law,  or  reducing  his  debt  to  a  judgment.  (Kinsey  v. 
McDearmon,  5  Cold.  392.)     The  surety  is  regarded  as 


236  SURETYSHIP  AND  GUARANTY. 

a  trustee  for  the  benefit  of  the  creditor,  and  such  trust 
subsists  until  the  debt  is  paid,  and  may  be  enforced 
against  any  one  taking  the  trust  property  with  notice 
of  its  character.  (Eastman  v.  Foster,  8  Met.  19;  Car- 
penter v.  Brown,  42  Miss.  28.)  And  it  is  held  that  the 
creditor  would  be  entitled  to  a  judgment  eonfessed  by 
the  principal  in  favor  of  the  surety  after  the  surety  had 
been  discharged.  (Crosby  v.  Crafts,  5  Hun  327.)  But 
it  is  held  that  where  the  indemnity  fund  or  security 
given  by  the  principal  to  the  surety  is  "against  a  con- 
tingent liability,"  there  can  be  no  substitution  in  favor 
of  the  creditor  until  the  liability  has  become  absolute. 
"If  a  mortgage  or  other  security  is  given  to  the  surety, 
not  to  secure  the  debt  or  provide  a  fund  for  its  pay- 
ment, but  to  save  harmless  from  a  contingent  liability 
or  loss,  that  contingency  must  come  or  the  injury  be 
sustained  before  a  right  to  the  indemnity  inures  to  the 
creditor."  (Per  Simrall,  J.,  in  Os'born  v.  Noble,  46 
Miss.  449.)  It  is  also  held  that  indemnity  given  by  a 
stranger  to  the  surety,  or  by  a  co-surety,  cannot  be 
claimed  by  the  creditor  by  subrogation.  (Taylor  v. 
Farmer's  Bank,  87  Ky.  398;  Hampton  v.  Phipps,  108 
U.  S.  2G0.)  Nor  can  the  creditor  be  subrogated  to 
personal  indemnity  given  the  surety,  that  is,  not  given 
as  a  pledge  for  the  payment  of  the  debt,  after  such 
surety  has  been  discharged,  since  the  possibility  of  the 
surety  being  damnified  has  ceased  with  his  discharge. 
(Constant  v.  Matteson,  22  111.  546.) 


NEGOTIABLE   INSTRUMENT    CODE 
OF  OHIO. 


As  enacted  April  17,  1902;  in  effect  January  1,  1903. 

SUBDIVISION    I.     NEGOTIABLE    INSTRU- 
MENTS IN  GENERAL. 

RE-SUBDIVISION    I.     FORM    AND    INTERPRETATION. 

Sec.  3171.  [Form  of  negotiable  instrument.']  An  in- 
strument to  be  negotiable  must  conform  to  the  following 
requirements : 

1.  It  must  be  in  writing  and  signed  by  the  maker  or 
drawer ; 

2.  Must  contain  an  unconditional  promise  or  order 
to  pay  a  sum  certain  in  money; 

3.  Must  be  payable  on  demand,  or  at  a  fixed  or 
determinable  future  time; 

4.  Must  be  payable  to  order  or  to  bearer ;  and 

5.  Where  the  instrument  is  addressed  to  a  drawee, 
he  must  be  named  or  otherwise  indicated  therein  with 
reasonable  certainty. 

Sec.  3171a.  [Certainty  as  to  sum;  what  constitutes.] 
The  sum  payable  is  a  sum  certain  within  the  meaning 
of  this  chapter  although  it  is  to  be  paid: 

237 


238  APPENDIX. 

1.  With  interest;  or 

2.  By  stated  installments;  or 

3.  By  stated  installments  with  a  provision  that  upon 
default  in  payment  of  any  installment  or  of  interest, 
the  whole  shall  become  due;  or 

4.  With  exchange,  whether  at  a  fixed  rate  or  at  the 
current  rate;  or 

5.  With  costs  of  collection  or  an  attorney's  fee,  in 
case  payment  shall  not  be  made  at  maturity. 

Sec.  3171b.  [When  promise  is  unconditional.]  An 
unqualified  order  or  promise  to  pay  is  unconditional 
within  the  meaning  of  this  chapter,  though  coupled 
with : 

1.  An  indication  of  a  particular  fund  out  of  which 
reimbursement  is  to  be  made,  or  a  particular  account 
to  be  debited  with  the  amount;   or 

2.  A  statement  of  the  transaction  which  gives  rise 
to  the  instrument. 

But  an  order  or  promise  to  pay  out  of  a  particular 
fund  is  not  unconditional. 

Sec.  3171c.  [Determinable  future  time;  what  con- 
stitutes. ]  An  instrument  is  payable  at  a  determinable 
future  time  within  the  meaning  of  this  chapter,  which 
is  expressed  to  be  payable : 

1.  At  a  fixed  period  after  date  or  sight;  or 

2.  On  or  before  a  fixed  or  determinable  future  time 
specified  therein;  or 

3.  On  or  at  a  fixed  period  after  the  occurrence  of 


APPENDIX.  239 

a  specified  event,  which  is  certain  to  happen,  though  the 
time  of  happening  be  uncertain. 

An  instrument  payable  upon  a  contingency  is  not 
negotiable,  and  the  happening  of  the  event  does  not 
cure  the  defect. 

Sec.  3171d.  [Additional  provisions  not  affecting  ne- 
gotiability.]  An  instrument  which  contains  an  order  or 
promise  to  do  any  act  in  addition  to  the  payment  of 
money  is  not  negotiable.  But  the  negotiable  character 
of  an  instrument  otherwise  negotiable  is  not  affected  by 
a  provision  which: 

1.  Authorizes  the  sale  of  collateral  securities  in  case 
the  instrument  be  not  paid  at  maturity ;  or 

2.  Authorizes  a  confession  of  judgment  if  the  in- 
strument be  not  paid  at  maturity;  or 

3.  Waives  the  benefit  of  any  law  intended  for  the 
advantage  or  protection  of  the  obligor;  or 

4.  Gives  the  holder  an  election  to  require  something 
to  be  done  in  lieu  of  payment  of  money. 

But  nothing  in  this  section  shall  validate  any  pro- 
vision or  stipulation  otherwise  illegal. 

Sec.  3171e.  [Omissions;  seal;  particular  money.] 
The  validity  and  negotiable  character  of  an  instrument 
is  not  affected  by  the  fact  that: 

1.  It  is  not  dated;  or 

2.  Does  not  specify  the  value  given,  or  that  any 
value  has  been  given  therefor;  or 

3.  Does  not  specify  the  place  where  it  is  drawn  or 
the  place  where  it  is  payable;  or 


240  APPENDIX. 

4-.     Bears  a  seal ;  or 

5.  Designates  a  particular  kind  of  current  money 
In  which  payment  is  to  be  made. 

But  nothing  in  this  section  shall  alter  or  repeal  any 
statute  requiring  in  certain  cases  the  nature  of  the  con- 
sideration to  be  stated  in  the  instrument. 

Sec.  3171f.  [When  payable  on  demand.]  An  in- 
strument is  payable  on  demand: 

1.  Where  it  is  expressed  to  be  payable  on  demand, 
or  at  sight,  or  on  presentation;  or 

2.  In  which  no  time  for  payment  is  expressed. 
Where  an  instrument  is  issued,  accepted,  or  indorsed 

when  overdue,  it  is,  as  regards  the  person  so  issuing, 
accepting,  or  indorsing  it,  payable  on  demand. 

Sec.  3171g.  [When  payable  to  order.]  The  instru- 
ment is  payable  to  order  where  it  is  drawn  payable  to 
the  order  of  a  specified  person  or  to  him  or  to  his  order. 
It  may  be  drawn  payable  to  the  order  of: 

1.  A  payee  who  is  not  maker,  drawer,  or  drawee;  or 

2.  The  drawer  or  maker;  or 

3.  The  drawee;  or 

4.  Two  or  more  payees  jointly;  or 

5.  One  or  some  of  several  payees;  or 

6.  The  holder  of  an  office  for  the  time  being. 

Where  the  instrument  is  payable  to  order  the  payee 
must  be  named  or  otherwise  indicated  therein  with  rea- 
sonable certainty. 


APPENDIX.  241 

Sec.  3171h.  [When  payable  to  bearer.]  The  instru- 
ment is  payable  to  bearer: 

1.  When  it  is  expressed  to  be  so  payable;  or 

2.  When  it  is  payable  to  a  person  named  therein  or 
bearer;  or 

3.  When  it  is  payable  to  the  order  of  a  fictitious  or 
non-existing  person,  and  such  fact  was  known  to  the 
person  making  it  so  payable;  or 

4.  When  the  name  of  the  payee  does  not  purport  to 
be  the  name  of  any  person ;  or 

5.  When  the  only  or  last  indorsement  is  an  indorse- 
ment in  blank. 

Sec.  3171i.  [Terms  when  sufficient.]  The  instru- 
ment need  not  follow  the  language  of  this  chapter,  but 
any  terms  are  sufficient  which  clearly  indicate  an  inten- 
tion to  conform  to  the  requirements  hereof. 

Sec.  3171  j.  [Date;  presumption  as  to.~\  Where  the 
instrument  or  an  acceptance  or  any  indorsement  thereon 
is  dated,  such  date  is  deemed  prima  facie  to  be  the  true 
date  of  the  making,  drawing,  acceptance  or  indorsement 
as  the  case  may  be. 

Sec.  3171k.  [Antedated  and  postdated.]  The  instru- 
ment is  not  invalid  for  the  reason  only  that  it  is  ante- 
dated or  postdated,  provided  this  is  not  done  for  an 
illegal  or  fraudulent  purpose.  The  person  to  whom  an 
instrument  so  dated  is  delivered  acquires  the  title  thereto 
as  of  the  date  of  delivery. 

Sec.  31711.  [When  date  may  be  inserted.]  Where 
an  instrument  expressed  to  be  payable  at  a  fixed  period 


APPENDIX. 

after  date  is  issued  undated,  or  where  the  acceptance 
of  an  instrument  payable  at  a  fixed  period  after  sight 
is  undated,  any  holder  may  insert  therein  the  true  date 
of  issue  or  acceptance  and  the  instrument  shall  be  pay- 
able accordingly.  The  insertion  of  a  wrong  date  does 
not  avoid  the  instrument  in  the  hands  of  a  subsequent 
holder  in  due  course ;  but  as  to  him,  the  date  so  inserted 
is  to  be  regarded  as  the  true  date. 

Sec.  3171m.  [Blanks;  when  may  be  filled.]  Where 
the  instrument  is  wanting  in  any  material  particular,  the 
person  in  possession  thereof  has  a  prima  facie  authority 
to  complete  it  by  filling  up  the  blanks  therein.  And  a 
signature  on  a  blank  paper  delivered  by  the  person 
making  the  signature  in  order  that  the  paper  may  be 
converted  into  a  negotiable  instrument  operates  as  a 
prima  facie  authority  to  fill  it  up  as  such  for  any  amount. 
In  order,  however,  that  any  such  instrument  when  com- 
pleted may  be  enforced  against  any  person  who  became 
a  party  thereto  prior  to  its  completion,  it  must  be  filled 
up  strictly  in  accordance  with  the  authority  given  and 
within  a  reasonable  time.  But  if  any  such  instrument 
after  completion  is  negotiated  to  a  holder  in  due  course, 
it  is  valid  and  effectual  for  all  purposes  in  his  hands, 
and  he  may  enforce  it  as  if  it  had  been  filled  up  strictly 
in  accordance  with  the  authority  given  and  within  a  rea- 
sonable time. 

Sec.  3171n.  [Incomplete  instrument  not  delivered.] 
Where  an  incomplete  instrument  has  not  been  delivered 
it  will  not,  if  completed  and  negotiated  without  author- 
ity, be  a  valid  contract  in  the  hands  of  any  holder,  as 


APPENDIX.  243 

against  any  person  whose  signature  was  placed  thereon 
before  delivery. 

Sec.  3171o.  [Delivery;  when  effectual;  when  pre- 
sumed.] Every  contract  on  a  negotiable  instrument  is 
incomplete  and  revocable  until  delivery  of  the  instru- 
ment  for  the  purpose  of  giving  effect  thereto.  As  be- 
tween immediate  parties,  and  as  regards  a  remote  party, 
other  than  a  holder  in  due  course,  the  delivery,  in  order 
to  be  effectual,  must  be  made  either  by  or  under  the 
authority  of  the  party  making,  drawing,  accepting  or 
endorsing,  as  the  case  may  be;  and  in  such  case  the  de- 
livery may  be  shown  to  have  been  conditional,  as  for  a 
special  purpose  only,  and  not  for  the  purpose  of  trans- 
ferring the  property  in  the  instrument.  But  where  the 
instrument  is  in  the  hands  of  a  holder  in  due  course,  a 
valid  delivery  thereof  by  all  parties  prior  to  him  so  as 
to  make  them  liable  to  him  is  conclusively  presumed. 
And  where  the  instrument  is  no  longer  in  the  possession 
of  a  party  whose  signature  appears  thereon,  a  valid  and 
intentional  delivery  by  him  is  presumed  until  the  con- 
trary is  proved. 

Sec.  3171p.  [Construction  where  instrument  is  am- 
biguous.'] Where  the  language  of  the  instrument  is 
ambiguous  or  there  are  omissions  therein,  the  following 
rules  of  construction  apply: 

1.  Where  the  sum  payable  is  expressed  in  words  and 
also  in  figures  and  there  is  a  discrepancy  between  the 
two,  the  sum  denoted  by  the  words  is  the  sum  payable; 
but  if  the  words  are  ambiguous  or  uncertain,  reference 
may  be  had  to  the  figures  to  fix  the  amount. 


244  APPENDIX. 

2.  Where  the  instrument  provides  for  the  payment 
of  interest  without  specifying  the  date  from  which  in- 
terest is  to  run,  the  interest  runs  from  the  date  of  the 
instrument,  and  if  the  instrument  is  undated,  from  the 
issue  thereof. 

3.  Where  the  instrument  is  not  dated,  it  will  be  con- 
sidered to  be  dated  as  of  the  time  it  was  issued; 

4.  Where  there  is  a  conflict  between  the  written  and 
printed  provisions  of  the  instrument,  the  written  pro- 
visions will  prevail; 

5.  Where  the  instrument  is  so  ambiguous  that  there 
is  doubt  whether  it  is  a  bill  or  note,  the  holder  may  treat 
it  as  either  at  his  election; 

6.  Where  a  signature  is  so  placed  upon  the  instru- 
ment that  it  is  not  clear  in  what  capacity  the  person 
making  the  same  intended  to  sign,  he  is  to  be  deemed  an 
indorser; 

7.  Where  an  instrument  containing  the  words  "I 
promise  to  pay"  is  signed  by  two  or  more  persons,  they 
are  deemed  to  be  jointly  and  severally  liable  thereon. 

Sec.  3171(1-  [Liability  of  persons  signing  in  trade 
or  assumed  name.']  No  person  is  liable  on  the  instru- 
ment whose  signature  does  not  appear  thereon,  except 
as  herein  otherwise  expressly  provided.  But  one  who 
signs  in  a  trade  or  assumed  name  will  be  liable  to  the 
same  extent  as  if  he  had  signed  in  his  own  name. 

Sec.  3171r.  [Signature  by  agent;  authority,  how 
shown.]  The  signature  of  any  party  may  be  made  by 
a  duly  authorized  agent.  No  particular  form  of  ap- 
pointment is  necessary  for  this  purpose,  and  the  author- 


APPENDIX.  245 

ity  of  the  agent  may  be  established  as  in  other  cases  of 
agency. 

Sec.  3171s.  [Liability  of  persons  signing  as  agents 
etc.]  Where  the  instrument  contains  or  a  person  adds 
to  his  signature  words  indicating  that  he  signs  for  or  on 
behalf  of  a  principal,  or  in  a  representative  capacity, 
he  is  not  liable  on  the  instrument  if  he  was  duly  author- 
ized; but  the  mere  addition  of  words  describing  him  as 
an  agent,  or  as  filling  a  representative  character  without 
disclosing  his  principal  does  not  exempt  him  from  per- 
sonal liability. 

Sec.  3171t.  [Signature  by  procuration;  effect  of.] 
A  signature  by  "procuration"  operates  as  notice  that 
the  agent  has  but  a  limited  authority  to  sign,  and  the 
principal  is  bound  only  in  case  the  agent  in  so  signing 
acted  within  the  actual  limits  of  his  authority. 

Sec.  3171u.  [Effect  of  indorsement  by  infant  or  cor- 
poration.] The  indorsement  or  assignment  of  the  instru- 
ment by  a  corporation  or  by  an  infant  passes  the  prop- 
erty therein,  notwithstanding  that  from  want  of  capac- 
ity the  corporation  or  infant  may  incur  no  liability  there- 
on. 

Sec.  3171v.  [Forged  signature;  effect  of.]  Where 
a  signature  is  forged  or  made  without  authority  of  the 
person  whose  signature  it  purports  to  be,  it  is  wholly 
inoperative,  and  no  right  to  retain  the  instrument,  or  to 
give  a  discharge  therefor,  or  to  enforce  payment  there- 
of against  any  party  thereto,  can  be  acquired  through 
or  under  such  signature,  unless  the  party  against  whom 


246  APPENDIX. 

it  is  sought  to  enforce  such  right  is  precluded  from  set- 
ting up  the  forgery  or  want  of  authority. 

RE-SUBDIVISION  II.     CONSIDERATION. 

Sec.  3171w.  [Presumption  of  consideration.]  Every 
negotiable  instrument  is  deemed  prima  facie  to  have 
been  issued  for  a  valuable  consideration;  and  every  per- 
son whose  signature  appears  thereon  to  have  become  a 
party  thereto  for  value. 

Sec.  3171x.  [Consideration;  what  constitutes.] 
Value  is  any  consideration  sufficient  to  support  a  simple 
contract.  An  antecedent  or  pre-existing  debt  consti- 
tutes value;  and  is  deemed  such  whether  the  instrument 
is  payable  on  demand  or  at  a  future  time. 

Sec.  3171y.  [What  constitutes  holder  for  value.] 
Where  value  has  at  any  time  been  given  for  the  instru- 
ment, the  holder  is  deemed  a  holder  for  value  in  respect 
to  all  parties  who  became  such  prior  to  that  time. 

Sec.  3171z.  [When  lien  on  instrument  constitutes 
holder  for  value.]  Where  the  holder  has  a  lien  on  the 
instrument,  arising  either  from  contract  or  by  implica- 
tion of  law,  he  is  deemed  a  holder  for  value  to  the  extent 
of  his  lien. 

Sec.  3172.  [Effect  of  want  of  consideration.]  Ab- 
sence or  failure  of  consideration  is  matter  of  defense  as 
against  any  person  not  a  holder  in  due  course  and  partial 
failure  of  consideration  is  a  defense  rjro  tanto,  whether 
the  failure  is  an  ascertained  and  liquidated  amount  or 
otherwise. 


APPENDIX.  247 

Sec.  3172a.  [Liability  of  accommodation  party.] 
An  accommodation  party  is  one  who  has  signed  the  in- 
strument as  maker,  drawer,  acceptor,  or  indorser,  with- 
out receiving  value  therefor,  and  for  the  purpose  of  lend- 
ing his  name  to  some  other  person.  Such  a  person  is 
liable  on  the  instrument  to  a  holder  for  value,  notwith- 
standing such  holder  at  the  time  of  taking  the  instru- 
ment knew  him  to  be  only  an  accommodation  party. 

RE-SUBDIVISION  III.     NEGOTIATION. 

Sec.  3172b.  [What  constitutes  negotiation.]  An  in- 
strument is  negotiated  when  it  is  transferred  from  one 
person  to  another  in  such  manner  as  to  constitute  the 
transferee  the  holder  thereof.  If  payable  to  bearer  it  is 
negotiated  by  delivery.  If  payable  to  order  it  is  nego- 
tiated by  the  indorsement  of  the  holder  completed  by 
delivery. 

Sec.  3172c.  [Indorsement;  how  made.]  The  in- 
dorsement must  be  written  on  the  instrument  itself,  or 
upon  a  paper  attached  thereto.  The  signature  of  the 
indorser  without  additional  words  is  a  sufficient  indorse- 
ment. 

Sec.  3172d.  [Indorsement  must  be  of  entire  instru- 
ment.] The  indorsement  must  be  an  indorsement  of 
the  entire  instrument.  An  indorsement  which  purports 
to  transfer  to  the  indorsee  a  part  only  of  the  amount 
payable,  or  which  purports  to  transfer  the  instrument 
to  two  or  more  indorsees  severally,  does  not  operate  as 
a  negotiation  of  the  instrument.    But  where  the  instru- 


248  APPENDIX. 

ment  has  been  paid  in  part,  it  may  be  indorsed  as  to 
the  residue. 

Sec.  3172e.  [Kinds  of  indorsement.]  An  indorse- 
ment may  be  either  special  or  in  blank;  and  it  may  also 
be  either  restrictive  or  qualified  or  conditional. 

Sec.  3172f.  [Special  indorsement;  indorsement  in 
blank.]  A  special  indorsement  specifies  the  person  to 
whom,  or  to  whose  order,  the  instrument  is  to  be  pay- 
able; and  the  indorsement  of  such  indorsee  is  necessary 
to  the  further  negotiation  of  the  instrument.  An  in- 
dorsement in  blank  specifies  no  indorsee,  and  an  instru- 
ment so  indorsed  is  payable  to  bearer,  and  may  be  ne- 
gotiated by  delivery. 

Sec.  3172g.  [Blank  indorsement;  how  changed  to 
special  indorsement.]  The  holder  may  convert  a  blank 
indorsement  into  a  special  indorsement  by  writing  over 
the  signature  of  the  indorser  in  blank  any  contract  con- 
sistent with  the  character  of  the  indorsement. 

Sec.  3172h.  [When  indorsement  restrictive.]  An  in- 
dorsement is  restrictive  which  either: 

1.  Prohibits  the  further  negotiation  of  the  instru- 
ment; or 

2.  Constitutes  the  indorsee  the  agent  of  the  indors- 
er; or 

3.  Vests  the  title  in  the  indorsee  in  trust  for  or  to 
the  use  of  some  other  person. 

But  the  mere  absence  of  words  implying  power  to 
negotiate  does  not  make  an  indorsement  restrictive. 
Sec.  3172i.  [Effect  of  restricting  indorsement;  rights 


APPENDIX.  249 

of  indorsee.']    A  restrictive  indorsement  confers  upon 
the  indorsee  the  right 

1.  To  receive  payment  of  the  instrument. 

2.  To  bring  any  action  thereon  that  the  indorser 
could  bring. 

3.  To  transfer  his  rights  as  such  indorsee,  where  the 
form  of  the  indorsement  authorizes  him  to  do  so. 

But  all  subsequent  indorsees  acquire  only  the  title 
of  the  first  indorsee  under  the  restrictive  indorsement. 

Sec.  3172j.  [Qualified  indorsement.']  A  qualified 
indorsement  constitutes  the  indorser  a  mere  assignor  of 
the  title  to  the  instrument.  It  may  be  made  by  adding 
to  the  indorser 's  signature  the  words  "without  recourse," 
or  any  words  of  similar  import.  Such  an  indorsement 
does  not  impair  the  negotiable  character  of  the  instru- 
ment. 

Sec.  3172k.  [Conditional  indorsement.]  Where  an 
indorsement  is  conditional  a  party  required  to  pay  the 
instrument  may  disregard  the  condition  and  make  pay- 
ment to  the  indorsee  or  his  transferee,  whether  the  con- 
dition has  been  fulfilled  or  not.  But  any  person  to 
whom  an  instrument  so  indorsed  is  negotiated,  will  hold 
the  same,  or  the  proceeds  thereof,  subject  to  the  rights 
of  the  person  indorsing  conditionally. 

Sec.  31721.  [Indorsement  of  instrument  payable  to 
bearer.]  Where  an  instrument  payable  to  bearer  is  in- 
dorsed specially,  it  may  nevertheless  be  further  nego- 
tiated by  delivery,  but  the  person  indorsing  specially  is 


250  APPENDIX. 

liable  as  indorser  to  only  such  holders  as  make  title 
through  his  indorsement. 

Sec.  3172m.  [Indorsement  where  payable  to  two  or 
more  persons.]  Where  an  instrument  is  payable  to  the 
order  of  two  or  more  payees,  or  indorsees  who  are  not 
partners,  all  must  indorse,  unless  the  one  indorsing  has 
authority  to  indorse  for  the  others. 

Sec.  3172n.  [Effect  of  instrument  drawn  or  indorsed 
to  a  person  as  cashier.]  Where  an  instrument  is  drawn 
or  indorsed  to  a  person  as  "cashier"  or  other  fiscal  of- 
ficer of  a  hank  or  corporation,  it  is  deemed  prima  facie 
to  be  payable  to  the  bank  or  corporation  of  which  he 
is  such  officer;  and  may  be  negotiated  by  either  the  in- 
dorsement of  the  bank  or  corporation  or  the  indorse- 
ment of  the  officer. 

Sec.  3172o.  [Indorsement  where  name  is  misspelled, 
et  cetera.]  Where  the  name  of  a  payee  or  endorsee  is 
wrongly  designated  or  misspelled,  he  may  indorse  the 
instrument  as  therein  described,  adding,  if  he  think  fit, 
his  proper  signature. 

Sec.  3172p.  [Indorsement  in  representative  capaci- 
ty.] Where  any  person  is  under  obligation  to  indorse 
in  a  representative  capacity,  he  may  indorse  in  such 
terms  as  to  negative  personal  liability. 

Sec.  3172q.  [Time  of  indorsement;  presumption.] 
Except  where  an  indorsement  bears  date  after  the  ma- 
turity of  the  instrument,  every  negotiation  is  deemed 
prima  facie  to  have  been  effected  before  the  instrument 
was  overdue. 

Sec.  3172r.     [Place  of  indorsement;  presumption.] 


APPENDIX.  251 

Except  where  the  contrary  appears  every  indorsement 
is  presumed  prima  facie  to  have  been  made  at  the  place 
where  the  instrument  is  dated. 

Sec.  3172s.  [Continuation  of  negotiable  character.] 
An  instrument  negotiable  in  its  origin  continues  to  be 
negotiable  until  it  has  been  restrictively  indorsed  or  dis- 
charged by  payment  or  otherwise. 

Sec.  3172t.  [Striking  out  indorsement.]  The  holder 
may  at  any  time  strike  out  any  indorsement  which  is  not 
necessary  to  his  title.  The  indorser  whose  indorsement 
is  struck  out,  and  all  indorsers  subsequent  to  him,  are 
thereby  relieved  from  liability  on  the  instrument. 

Sec.  3172u.  [Transfer  without  endorsement;  effect 
of.]  Where  the  holder  of  an  instrument  payable  to  his 
order  transfers  it  for  value  without  indorsing  it,  the 
transfer  vests  in  the  transferee  such  title  as  the  trans- 
ferer had  therein  and  the  transferee  acquires  in  addi- 
tion the  right  to  have  the  indorsement  of  the  transferer. 
But  for  the  purpose  of  determining  whether  the  trans- 
feree is  a  holder  in  due  course,  the  negotiation  takes  ef- 
fect as  of  the  time  when  the  indorsement  is  actually 
made. 

Sec.  3172v.  [When  prior  party  may  negotiate  in- 
strument.]  Where  an  instrument  is  negotiated  back  to 
a  prior  party,  such  party  may,  subject  to  the  provisions 
of  this  Chapter,  reissue  and  further  negotiate  the  same. 
But  he  is  not  entitled  to  enforce  payment  thereof  against 
any  intervening  party  to  whom  he  was  personally  liable. 


252  APPENDIX. 

RE-SUBDIVISION   IV.     RIGHTS  OF   HOLDER. 

Sec.  3172w.  [Rights  of  holder  to  sue;  payment.] 
The  holder  of  a  negotiable  instrument  may  sue  thereon 
in  his  own  name;  and  payment  to  him  in  due  course 
discharges  the  instrument. 

Sec.  3172x.  [What  constitutes  a  holder  in  due 
course.]  A  holder  in  due  course  is  a  holder  who  has 
taken  the  instrument  under  the  following  conditions: 

1.  That  it  is  complete  and  regular  upon  its  face. 

2.  That  he  became  the  holder  of  it  before  it  was 
overdue,  and  without  notice  that  it  had  been  previously 
dishonored,  if  such  was  the  fact. 

3.  That  he  took  it  in  good  faith  and  for  value. 

4.  That  at  the  time  it  was  negotiated  to  him  he  had 
no  notice  of  any  infirmity  in  the  instrument  or  defect  in 
the  title  of  the  person  negotiating  it. 

Sec.  3172y.  [When  person  not  deemed  holder  in  due 
course.]  Where  an  instrument  payable  on  demand  is 
negotiated  an  unreasonable  length  of  time  after  its  issue, 
the  holder  is  not  deemed  a  holder  in  due  course. 

Sec.  3172z.  [Notice  before  full  amount  paid.]  Where 
the  transferee  receives  notice  of  any  infirmity  in  the  in- 
strument or  defect  in  the  title  of  the  person  negotiating 
the  same  before  he  has  paid  the  full  amount  agreed  to 
be  paid  therefor,  he  will  be  deemed  a  holder  in  due  course 
only  to  the  extent  of  the  amount  theretofore  paid  by 
him. 

Sec.  3173.     [When  title  defective.]     The  title  of  a 


APPENDIX.  253 

person  who  negotiates  an  instrument,  or  any  signature 
thereto,  by  fraud,  duress,  or  force  and  fear,  or  other 
unlawful  means,  or  for  an  illegal  consideration,  or  when 
he  negotiates  it  in  breach  of  faith,  or  under  such  circum- 
stances as  amount  to  a  fraud. 

Sec.  3173a.  [What  constitutes  notice  of  defect.]  To 
constitute  notice  of  an  infirmity  in  the  instrument  or  de- 
fect in  the  title  of  the  person  negotiating  the  same,  the 
person  to  whom  it  is  negotiated  must  have  had  actual 
knowledge  of  the  infirmity  or  defect,  or  knowledge  of 
such  facts  that  his  action  in  taking  the  instrument 
amounted  to  bad  faith. 

Sec.  3173b.  [Rights  of  holder  in  due  course.']  A 
holder  in  due  course  holds  the  instrument  free  from  any 
defect  of  title  of  prior  parties,  and  free  from  defenses 
available  to  prior  parties,  among  themselves,  and  may 
enforce  payment  of  the  instrument  for  the  full  amount 
thereof  against  all  parties  liable  thereon. 

Sec.  3173c.  [When  subject  to  original  defenses.] 
In  the  hands  of  any  holder  other  than  a  holder  in  due 
course,  a  negotiable  instrument  is  subject  to  the  same 
defenses  as  if  it  were  non-negotiable.  But  a  holder  who 
derives  his  title  through  a  holder  in  due  course,  and  who 
is  not  himself  a  party  to  any  fraud  or  illegality  affecting 
the  instrument,  has  all  the  rights  of  such  former  holder 
in  respect  of  all  parties  prior  to  the  latter. 

Sec.  3173d.  [Who  deemed  holder  in  due  course.] 
Every  holder  is  deemed  prima  facie  to  be  a  holder  in 
due  course;  but  when  it  is  shown  that  the  title  of  any 
person  who  has  negotiated  the  instrument  was  defective, 


254  APPENDIX. 

the  burden  is  on  the  holder  to  prove  that  he  or  some 
person  under  whom  he  claims  acquired  the  title  as  a 
holder  in  due  course.  But  the  last  mentioned  rule  does 
not  apply  in  favor  of  a  party  who  became  bound  on  the 
instrument  prior  to  the  acquisition  of  such  defective  title. 

HE-SUBDIVISION    V.      LIABILITIES    OF    PARTIES. 

Sec.  3173e.  [Liability  of  maker.']  The  maker  of  a 
negotiable  instrument  by  making  it  engages  that  he  will 
pay  it  according  to  its  tenor,  and  admits  the  existence 
of  the  payee  and  his  then  capacity  to  indorse. 

See.  3173f.  [Liability  of  drawer.]  The  drawer  by 
drawing  the  instrument  admits  the  existence  of  the  payee 
and  his  then  capacity  to  indorse;  and  engages  that  on 
due  presentment  the  instrument  will  be  accepted  and 
paid,  or  both,  according  to  its  tenor,  and  that  if  it  be  dis- 
honored, and  the  necessary  proceedings  on  dishonor  be 
duly  taken,  he  will  pay  the  amount  thereof  to  the  holder, 
or  to  any  subsequent  indorser  who  may  be  compelled  to 
pay  it.  But  the  drawer  may  insert  in  the  instrument  an 
express  stipulation  negativing  or  limiting  his  own  lia- 
bility to  the  holder. 

Sec.  3173g.  [Liability  of  acceptor.]  The  acceptor 
by  accepting  the  instrument  engages  that  he  will  pay  it 
according  to  the  tenor  of  his  acceptance  and  admits: 

1.  The  existence  of  the  drawer,  the  genuineness  of 
his  signature,  and  his  capacity  and  authority  to  draw 
the  instrument,  and, 

2.  The  existence  of  the  payee  and  his  then  capacity 
to  indorse. 


APPENDIX.  255 

Sec.  3173h.  [When  person  deemed  indorser.]  A 
person  placing  his  signature  upon  an  instrument  other- 
wise than  as  maker,  drawer  or  acceptor  is  deemed  to  be 
an  indorser,  unless  he  clearly  indicates  by  appropriate 
words  his  intention  to  be  bound  in  some  other  capacity. 

Sec.  3173i.  [Liability  of  irregular  indorser.]  When 
a  person  not  otherwise  a  party  to  an  instrument  places 
thereon  his  signature  in  blank  before  delivery,  he  is  lia- 
ble as  indorser  in  accordance  with  the  following  rules: 

1.  If  the  instrument  is  payable  to  the  order  of  a 
third  person,  he  is  liable  to  the  payee  and  to  all  subse- 
quent parties. 

2.  If  the  instrument  is  payable  to  the  order  of  the 
maker  or  drawer,  or  is  payable  to  bearer,  he  is  liable  to 
all  parties  subsequent  to  the  maker  or  drawer. 

3.  If  he  signs  for  the  accommodation  of  the  payee, 
he  is  liable  to  all  parties  subsequent  to  the  payee. 

Sec.  3173j.  [Warranty  where  negotiation  by  de- 
livery, etc.]  Every  person  negotiating  an  instrument 
by  delivery  or  by  a  qualified  indorsement  warrants : 

1.  That  the  instrument  is  genuine  and  in  all  respects 
what  it  purports  to  be. 

2.  That  he  has  a  good  title  to  it. 

3.  That  all  prior  parties  had  capacity  to  contract. 

4.  That  he  has  no  knowledge  of  any  fact  which 
would  impair  the  validity  of  the  instrument  or  render  it 
valueless. 

But  when  the  negotiation  is  by  delivery  only,  the  war- 


256  APPENDIX. 

ranty  extends  in  favor  of  no  holder  other  than  the  im- 
mediate transferee. 

The  provisions  of  paragraph  numbered  three  of  this 
section  do  not  apply  to  persons  negotiating  public  or 
corporate  securities,  other  than  bills  and  notes. 

Sec.  3173k.  [Liability  of  general  indorser.]  Every 
indorser  who  indorses  without  qualification,  warrants, 
to  all  subsequent  holders  in  due  course : 

1.  The  matters  and  things  mentioned  in  paragraphs 
numbered  one,  two  and  three  of  the  next  preceding  sec- 
tion ;  and 

2.  That  the  instrument  is  at  the  time  of  his  indorse- 
ment valid  and  subsisting. 

And,  in  addition,  he  engages  that  on  due  presentment, 
it  shall  be  accepted  or  paid  or  both,  as  the  case  may  be, 
according  to  its  tenor,  and  that  if  it  be  dishonored  and 
the  necessary  proceedings  on  dishonor  be  duly  taken,  he 
will  pay  the  amount  thereof  to  the  holder,  or  to  any  sub- 
sequent indorser  who  may  be  compelled  to  pay  it. 

Sec.  31731.  [Liability  of  indorser  where  paper  ne- 
gotiable by  delivery.]  Where  a  person  places  his  in- 
dorsement on  an  instrument  negotiable  by  delivery  he 
incurs  all  the  liabilities  of  an  indorser. 

Sec.  3173m.  [Order  in  which  indorsers  are  liable.] 
As  respects  one  another,  indorsers  are  liable  prima  facie 
in  the  order  in  which  they  indorse;  but  evidence  is  ad- 
missible to  show  that  as  between  or  among  themselves 
they  have  agreed  otherwise.     Joint  payees  or  joint  in- 


APPENDIX.  257 

dorsers  who  indorse  are  deemed  to  indorse  jointly  and 
severally. 

Sec.  3173n.  [Liability  of  an  agent  or  broker.'] 
Where  a  broker  or  other  agent  negotiates  an  instrument 
without  indorsement,  he  incurs  all  the  liabilities  pre- 
scribed by  section  thirty-one  hundred  and  seventy-three  j 
(3173j)  of  this  chapter,  unless  he  discloses  the  name 
of  his  principal,  and  the  fact  that  he  is  acting  only  as 
agent. 

RE-SUBDIVISION  VI.     PRESENTMENT  FOR  PAYMENT. 

Sec.  3173o.  [Effect  of  want  of  demand  on  principal 
debtor.]  Presentment  for  payment  is  not  necessary  in 
order  to  charge  the  person  primarily  liable  on  the  in- 
strument ;  but  if  the  instrument  is,  by  its  terms,  payable 
at  a  special  place,  and  he  is  able  and  willing  to  pay  it 
there  at  maturity,  and  has  funds  there  available  for  that 
purpose,  such  ability  and  willingness  are  equivalent  to  a 
tender  of  payment  on  his  part.  But  except  as  herein 
otherwise  provided,  presentment  for  payment  is  neces- 
sary in  order  to  charge  the  drawer  and  indorsers. 

Sec.  3173p.  [Presentment  where  instrument  is  not 
payable  on  demand  and  where  payable  on  demand.] 
Where  the  instrument  is  not  payable  on  demand  pre- 
sentment must  be  made  on  the  day  it  falls  due.  Where 
it  is  payable  on  demand,  presentment  must  be  made 
within  a  reasonable  time  after  its  issue  except  that  in  the 
case  of  a  bill  of  exchange,  presentment  for  payment  will 
be  sufficient  if  made  within  a  reasonable  time  after  the 
last  negotiation  thereof. 


258  APPENDIX. 

Sec.  3173q.  [JVliat  constitutes  a  sufficient  present- 
ment.] Presentment  for  payment,  to  be  sufficient,  must 
be  made: 

1.  By  the  holder  or  by  some  person  authorized  to 
receive  payment  on  his  behalf. 

2.  At  a  reasonable  hour  on  a  business  day. 

3.  At  a  proper  place  as  herein  defined. 

4.  To  the  person  primarily  liable  on  the  instru- 
ment, or  if  he  is  absent  or  inaccessible,  to  any  person 
found  at  the  place  where  the  presentment  is  made. 

Sec.  3173r.  [Place  of  presentment.]  Presentment 
or  payment  is  made  at  the  proper  place: 

1.  Where  a  place  of  payment  is  specified  in  the  in- 
strument and  it  is  there  presented. 

2.  Where  no  place  of  payment  is  specified,  but  the 
address  of  the  person  to  make  payment  is  given  in  the 
instrument  and  it  is  there  presented. 

3.  Where  no  place  of  payment  is  specified  and  no 
address  is  given  and  the  instrument  is  presented  at  the 
usual  place  of  business  or  residence  of  the  person  to 
make  payment. 

4.  In  any  other  case  if  presented  to  the  person  to 
make  payment  wherever  he  can  be  found,  or  if  presented 
at  his  last  known  place  of  business  or  residence. 

Sec.  3173s.  [Instrument  must  be  exhibited.]  The 
instrument  must  be  exhibited  to  the  person  from  whom 
payment  is  demanded,  and  when  it  is  paid  must  be  de- 
livered up  to  the  party  paying  it. 


APPENDIX.  259 

Sec.  3173t.  [Presentment  where  instrument  pay- 
able at  bank.]  Where  the  instrument  is  payable  at  a 
bank,  presentment  for  payment  must  be  made  during 
banking  hours,  unless  the  person  to  make  payment  has 
no  funds  there  to  meet  it  at  any  time  during  the  day,  in 
which  case  presentment  at  any  hour  before  the  bank  is 
closed  on  that  day  is  sufficient. 

Sec.  3173u.  [Presentment  where  principal  debtor  is 
dead.]  Where  the  person  primarily  liable  on  the  in- 
strument is  dead,  and  no  place  of  payment  is  specified, 
presentment  for  payment  must  be  made  of  his  personal 
representative,  if  such  there  be,  and  if  with  the  exercise 
of  reasonable  diligence,  he  can  be  found. 

Sec.  3173v.  [Presentment  to  persons  liable  as  part- 
ners.] Where  the  persons  primarily  liable  on  the  in- 
strument are  liable  as  partners,  and  no  place  of  pay- 
ment is  specified,  presentment  for  payment  may  be 
made  to  any  one  of  them,  even  though  there  has  been  a 
dissolution  of  the  firm. 

Sec.  3173w.  [Presentment  to  joint  debtors.]  Where 
there  are  several  persons,  not  partners,  primarily  liable, 
on  the  instrument,  and  no  place  of  payment  is  specified, 
presentment  must  be  made  to  them  all. 

Sec.  3173x.  [When  presentment  not  required  to 
charge  the  drawer.]  Presentment  for  payment  is  not 
required  in  order  to  charge  the  drawer  where  he  has  no 
right  to  expect  or  require  that  the  drawee  or  acceptor 
will  pay  the  instrument. 

Sec.  3173y.  [When  presentment  not  required  to 
charge  the  indorser.]    Presentment  for  payment  is  not 


260  APPENDIX. 

required  in  order  to  charge  an  indorser  where  the  in- 
strument was  made  or  accepted  for  his  accommodation, 
and  he  has  no  reason  to  expect  that  the  instrument  will 
be  paid  if  presented. 

Sec.  3173z.    [When  delay  in  making  presentment  is 

excused.]  Delay  in  making  presentment  for  payment 
is  excused  when  the  delay  is  caused  by  circumstances 
beyond  the  control  of  the  holder,  and  not  imputable  to 
his  default,  misconduct  or  negligence.  When  the  cause 
of  delay  ceases  to  operate,  presentment  must  be  made 
with  reasonable  diligence. 

Sec.  3174.  [When  presentment  may  be  dispensed 
with.]     Presentment  for  payment  is  dispensed  with: 

1.  Where,  after  the  exercise  of  reasonable  diligence, 
presentment  as  required  by  this  chapter  can  not  be  made. 

2.  Where  the  drawee  is  a  fictitious  person. 

3.  By  waiver  of  presentment,  express  or  implied. 

Sec.  3174a.  [When  instrument  dishonored  by  non- 
payment.] The  instrument  is  dishonored  by  non-pay- 
ment when: 

1.  It  is  duly  presented  for  payment  and  payment 
is  refused  or  cannot  be  obtained;  or, 

2.  Presentment  is  excused  and  the  instrument  is 
overdue  and  unpaid. 

Sec.  3174b.  [Liability  of  person  secondarily  liable, 
when  instrument  dishonored.]  Subject  to  the  provi- 
sions of  this  chapter,  when  the  instrument  is  dishon- 
ored by  non-payment,  an  immediate  right  of  recourse 


APPENDIX.  261 

to  all  parties  secondarily  liable  thereon  accrues  to  the 
holder. 

Sec.  3174c.  [Time  of  maturity.]  Every  negotiable 
instrument  is  payable  at  the  time  fixed  therein  without 
grace.  When  the  day  of  maturity  falls  upon  Sunday, 
or  a  holiday,  the  instrument  is  payable  on  the  next 
succeeding  business  day.  Instruments  falling  due  on 
Saturday  are  to  be  presented  for  payment  on  the  next 
succeeding  business  day,  except  that  instruments  pay- 
able on  demand  may,  at  the  option  of  the  holder,  be 
presented  for  payment  before  twelve  o'clock  noon  on 
Saturday  when  that  entire  day  is  not  a  holiday. 

Sec.  3174d.  [Time;  how  computed.]  Where  the  in- 
strument is  payable  at  a  fixed  period  after  date,  after 
sight,  or  after  the  happening  of  a  specified  event,  the 
time  of  payment  is  determined  by  excluding  the  day 
from  which  the  time  is  to  begin  to  run,  and  by  including 
the  date  of  payment. 

Sec.  3174e.  [Rule  where  instrument  payable  at 
bank.]  Where  the  instrument  is  made  payable  at  a 
bank,  it  is  equivalent  to  an  order  to  the  bank  to  pay 
the  same  for  the  account  of  the  principal  debtor  thereon. 

Sec.  3174f.  [What  constitutes  payment  in  due 
course.]  Payment  is  made  in  due  course  when  it  is 
made  at  or  after  the  maturity  of  the  instrument  to  the 
holder  thereof  in  good  faith  and  without  notice  that  his 
title  is  defective. 


262  APPENDIX. 

RE-SUBDIVISION   VII.      NOTICE  OF  DISHONOR. 

Sec.  3174g.  [To  whom  notice  of  dishonor  must  be 
given.']  Except  as  herein  otherwise  provided,  when  a 
negotiable  instrument  lias  been  dishonored  by  non-ac- 
ceptance or  non-payment,  notice  of  dishonor  must  be 
given  to  the  drawer  and  to  each  indorser,  and  any 
drawer  or  indorser  to  whom  such  notice  is  not  given  is 
discharged. 

Sec.  3174h.  [By  whom  given.]  The  notice  may  be 
given  by  or  on  behalf  of  the  holder,  or  by  or  on  behalf 
of  any  party  to  the  instrument  who  might  be  compelled 
to  pay  it  to  the  holder,  and  who,  upon  taking  it  up, 
would  have  a  right  to  reimbursement  from  the  party 
to  whom  the  notice  is  given. 

Sec.  3174i.  [Notice  given  by  agent.]  Notice  of  dis- 
honor may  be  given  by  an  agent  either  in  his  own  name 
or  in  the  name  of  any  party  entitled  to  give  notice, 
whether  that  party  be  his  principal  or  not. 

Sec.  3174j.  [Effect  of  notice  given  on  behalf  of 
holder.]  Where  notice  is  given  by  or  on  behalf  of  the 
holder,  it  enures  for  the  benefit  of  all  subsequent  holders, 
and  all  prior  parties  who  have  a  right  of  recourse  against 
the  party  to  whom  it  is  given. 

Sec.  3174k.  [Effect  where  notice  is  given  by  party 
entitled  thereto.]  Where  notice  is  given  by  or  on  be- 
half of  a  party  entitled  to  give  notice,  it  enures  for  the 
benefit  of  the  holder  and  all  parties  subsequent  to  the 
party  to  whom  notice  is  given. 

Sec.  31741.     [When  agent  may  give  notice.]     Where 


APPENDIX.  263 

the  instrument  has  been  dishonored  in  the  hands  of  an 
agent,  he  may  either  himself  give  notice  to  the  parties 
liable  thereon  or  he  may  give  notice  to  his  principal.  If 
he  give  notice  to  his  principal  he  must  do  so  within  the 
same  time  as  if  he  were  the  holder,  and  the  principal 
upon  the  receipt  of  such  notice  has  himself  the  same 
time  for  giving  notice  as  if  the  agent  had  been  an  inde- 
pendent holder. 

Sec.  3174m.  [When  notice  sufficient.]  A  written 
notice  need  not  be  signed,  and  an  insufficient  written  no- 
tice may  be  supplemented  and  validated  by  verbal  com- 
munication. A  misdescription  of  the  instrument  does 
not  vitiate  the  notice  unless  the  party  to  whom  the  notice 
is  given  is  in  fact  misled  thereby. 

Sec.  3174n.  [Form  of  notice.]  The  notice  may  be 
in  writing  or  merely  oral,  and  may  be  given  in  any  terms 
which  sufficiently  identify  the  instrument,  and  indicate 
that  it  has  been  dishonored  by  nonacceptance  or  non- 
payment. It  may  in  all  cases  be  given  by  delivering  it 
personally  or  through  the  mails. 

Sec.  3174o.  [To  whom  notice  may  be  given.]  No- 
tice of  dishonor  may  be  given  either  to  the  party  himself 
or  to  his  agent  in  that  behalf. 

Sec.  3174p.  [Notice  where  party  is  dead.]  When 
any  party  is  dead  and  his  death  is  known  to  the  party 
giving  notice,  the  notice  must  be  given  to  a  personal  rep- 
resentative, if  there  be  one,  and  if  with  reasonable  dili- 
gence he  can  be  found.  If  there  be  no  personal  repre- 
sentative, notice  may  be  sent  to  the  last  residence  or  the 
last    place  of  business  of  the  deceased. 


864  APPENDIX. 

Sec.  3174q.  [Notice  to  partners.']  Where  the  par- 
ties to  be  notified  are  partners,  notice  to  any  one  partner 
is  notice  to  the  firm  even  though  there  has  been  a  dissolu- 
tion. 

Sec.  3174r.  [Notice  to  persons  jointly  liable.]  No- 
tice to  joint  parties  who  are  not  partners  must  be  given 
to  each  of  them  unless  one  of  them  has  authority  to  re- 
ceive such  notice  for  the  others. 

Sec.  3174s.  [Notice  to  bankrupt.]  Where  a  party 
has  been  adjudged  a  bankrupt  or  an  insolvent,  or  has 
made  an  assignment  for  the  benefit  of  creditors,  notice 
may  be  given  either  to  the  party  himself  or  to  his  trustee 
or  assignee. 

Sec.  3174t.  [Time  within  which  notice  must  be 
given.]  Notice  may  be  given  as  soon  as  the  instrument 
is  dishonored;  and  unless  delay  is  excused  as  hereinafter 
provided  must  be  given  within  the  times  fixed  by  this 
chapter. 

Sec.  3174u.  [Where  parties  reside  in  same  place.] 
Where  the  person  giving  and  the  person  to  receive  no- 
tice reside  in  the  same  place  notice  must  be  given  within 
the  following  times: 

1.  If  given  at  the  place  of  business  of  the  person  to 
receive  notice,  it  must  be  given  before  the  close  of  busi- 
ness hours  on  the  day  following. 

2.  If  given  at  his  residence,  it  must  be  given  before 
the  usual  hours  of  rest  on  the  day  following. 

3.  If  sent  by  mail,  it  must  be  deposited  in  the  post- 
office  in  time  to  reach  him  in  usual  course  on  the  day  fol- 
lowing. 


APPENDIX.  265 

Sec.  3174v.  [Where  parties  reside  in  different 
places.]  Where  the  person  giving  and  the  person  to 
receive  notice  reside  in  different  places,  the  notice  must 
be  given  within  the  following  times: 

1.  If  sent  by  mail,  it  must  be  deposited  in  the  post- 
office  in  time  to  go  by  mail  the  day,  following  the  day  of 
dishonor,  or  if  there  be  no  mail  at  a  convenient  hour  on 
that  day,  by  the  next  mail  thereafter. 

2.  If  given  otherwise  than  through  the  postoffice, 
then  within  the  time  that  notice  would  have  been  re- 
ceived in  due  course  of  mail  if  it  had  been  deposited  in 
the  postoffice  within  the  time  specified  in  the  next  pre- 
ceding paragraph  of  this  section. 

Sec.  3174w.  [When  sender  deemed  to  have  given 
due  notice. ,]  Where  notice  of  dishonor  is  duly  ad- 
dressed and  deposited  in  the  postoffice,  the  sender  is 
deemed  to  have  given  due  notice,  notwithstanding  any 
miscarriage  in  the  mails. 

Sec.  3174x.  [Deposit  in  postoffice;  what  consti- 
tutes.] Notice  is  deemed  to  have  been  deposited  in  the 
postoffice  when  deposited  in  any  branch  postoffice  or  in 
any  letter  box  under  the  control  of  the  postoffice  de- 
partment. 

Sec.  3174y.  [Notice  to  subsequent  party;  time  of.~\ 
Where  a  party  receives  notice  of  dishonor,  he  has,  after 
the  receipt  of  such  notice,  the  same  time  for  giving  no- 
tice to  antecedent  parties  that  the  holder  has  after  the 
dishonor. 

Sec.  3174z.  [Where  notice  must  be  sent.]  Where  a 
party  has  added  an  address  to  his  signature,  notice  of 


266  APPENDIX. 

dishonor  must  be  sent  to  that  address ;  but  if  he  has  not 
given  such  address  then  the  notice  must  be  sent  as  fol- 
lows : 

1.  Either  to  the  postoffice  nearest  to  his  place  of  resi- 
dence, or  to  the  postoffice  where  he  is  accustomed  to  re- 
ceive his  letters;  or, 

2.  If  he  live  in  one  place,  and  have  his  place  of  busi- 
ness in  another,  notice  may  be  sent  to  either  place;  or, 

3.  If  he  is  sojourning  in  another  place,  notice  may- 
be sent  to  the  place  where  he  is  sojourning. 

But  where  the  notice  is  actually  received  by  the  party 
within  the  time  specified  in  this  chapter  it  will  be  suf- 
ficient though  not  sent  in  accordance  with  the  require- 
ments of  this  section. 

Sec.  3175.  [Waiver  of  notice.']  Notice  of  dishonor 
may  be  waived  either  before  the  time  of  giving  notice 
has  arrived  or  after  the  omission  to  give  due  notice,  and 
the  waiver  may  be  express  or  implied. 

Sec.  3175a.  [Whom,  affected  by  waiver.]  Where  the 
waiver  is  embodied  in  the  instrument  itself  it  is  binding 
upon  all  parties;  but  where  it  is  written  above  the  sig- 
nature of  an  indorser,  it  binds  him  only. 

Sec.  3175b.  [Waiver  of  protest.]  A  waiver  of  pro- 
test whether  in  the  case  of  a  foreign  bill  of  exchange  or 
other  negotiable  instrument,  is  deemed  to  be  a  waiver 
not  only  of  a  formal  protest,  but  also  of  presentment 
and  notice  of  dishonor. 

Sec.  3175c.  [When  notice  is  dispensed  with.]  No- 
tice of  dishonor  is  dispensed  with  when,  after  the  exer- 


APPENDIX.  267 

cise  of  reasonable  diligence,  it  can  not  be  given  to  or 
does  not  reach  the  parties  sought  to  be  charged. 

Sec.  3175d.  [Delay  in  giving  notice;  how  excused.] 
Delay  in  giving  notice  of  dishonor  is  excused  when  the 
delay  is  caused  by  circumstances  beyond  the  control  of 
the  holder,  and  not  imputable  to  his  default,  misconduct 
or  negligence.  When  the  cause  of  delay  ceases  to  oper- 
ate, notice  must  be  given  with  reasonable  diligence. 

Sec.  3175e.  [When  notice  need  not  be  given  to 
drawer.]  Notice  of  dishonor  is  not  required  to  be  given 
to  the  drawer  in  either  of  the  following  cases: 

1.  Where  the  drawer  and  drawee  are  the  same  per- 
son; 

2.  Where  the  drawee  is  a  fictitious  person  or  a  per- 
son not  having  capacity  to  contract. 

3.  Where  the  drawer  is  the  person  to  whom  the  in- 
strument is  presented  for  payment. 

4.  Where  the  drawer  has  no  right  to  expect  or  re- 
quire that  the  drawee  or  acceptor  will  honor  the  instru- 
ment. 

5.  Where  the  drawer  has  countermanded  payment. 

Sec.  3175 f.  [When  notice  need  not  be  given  to  in- 
dorser.~\  Notice  of  dishonor  is  not  required  to  be  given 
to  an  indorser  in  either  of  the  following  cases: 

1.  Where  the  drawee  is  a  fictitious  person,  or  a  per- 
son not  having  capacity  to  contract,  and  the  indorser 
was  aware  of  the  fact  at  the  time  he  indorsed  the  instru- 
ment ; 


268  APPENDIX. 

2.  Where  the  indorser  is  the  person  to  whom  the  in- 
strument is  presented  for  payment; 

3.  AVhere  the  instrument  was  made  or  accepted  for 
his  accommodation. 

Sec.  3175g.  [Notice  of  nonpayment  where  accept- 
ance refused.]  Where  due  notice  of  dishonor  hy  non- 
acceptance  has  been  given,  notice  of  a  subsequent  dis- 
honor by  nonpayment  is  not  necessary,  unless  in  the 
meantime  the  instrument  has  been  accepted. 

Sec.  3175h.  [Effect  of  omission  to  give  notice  of  non- 
acceptance.]  An  omission  to  give  notice  of  dishonor  by 
nonacceptance  does  not  prejudice  the  rights  of  a  holder 
in  due  course  subsequent  to  the  omission. 

Sec.  3175i.  [When  protest  need  not  be  made;  when 
must  be  made.]  Where  any  negotiable  instrument  has 
been  dishonored  it  may  be  protested  for  nonacceptance 
or  nonpayment  as  the  case  may  be;  but  the  protest  is 
not  required  except  in  the  case  of  foreign  bills  of  ex- 
change. 

RE-SUBDIVISION   VIII.     DISCHARGE   OF   NEGOTIABLE 
INSTRUMENTS. 

Sec.  3175 j.  [Instrument;  how  discharged.]  A  ne- 
gotiable instrument  is  discharged: 

1.  By  payment  in  due  course  by  or  on  behalf  of  the 
principal  debtor; 

2.  By  payment  in  due  course  by  the  party  accommo- 
dated, where  the  instrument  is  made  or  accepted  for  ac- 
commodation ; 


APPENDIX.  269 

3.  By  the  intentional  cancellation  thereof  by  the 
holder ; 

4>.  By  any  other  act  which  will  discharge  a  simple 
contract  for  the  payment  of  money; 

5.  When  the  principal  debtor  becomes  the  holder  of 
the  instrument  at  or  after  maturity  in  his  own  right. 

Sec.  3175k.  [When  person  secondarily  liable  on,  dis- 
charged.] A  person  secondarily  liable  on  the  instru- 
ment is  discharged: 

1.  By  any  act  which  discharges  the  instrument; 

2.  By  the  intentional  cancellation  of  his  signature 
by  the  holder; 

3.  By  the  discharge  of  a  prior  party; 

4.  By  a  valid  tender  of  payment  made  by  a  prior 
party; 

5.  By  a  release  of  the  principal  debtor,  unless  the 
holder's  right  of  recourse  against  the  party  secondarily 
liable  is  expressly  reserved; 

6.  By  any  agreement  binding  upon  the  holder  to  ex- 
tend the  time  of  payment,  or  to  postpone  the  holder's 
right  to  enforce  the  instrument,  unless  made  with  the  as- 
sent of  the  person  secondarily  liable,  or  unless  the  right 
of  recourse  against  such  party  is  expressly  reserved. 

Sec.  31751.  [Right  of  party  who  discharges  instru- 
ment.'] Where  the  instrument  is  paid  by  a  party  sec- 
ondarily liable  thereon,  it  is  not  discharged;  but  the 
party  so  paying  it  is  remitted  to  his  former  rights  as  re- 
gards all  prior  parties,  and  he  may  strike  out  his  own 


270  APPENDIX. 

and  all  subsequent  indorsements,  and  again  negotiate 
the  instrument  except: 

1.  Where  it  is  payable  to  the  order  of  a  third  per- 
son, and  has  been  paid  by  the  drawer;  and, 

2.  Where  it  was  made  or  accepted  for  accommoda- 
tion, and  has  been  paid  by  the  party  accommodated. 

Sec.  3175m.  [Renunciation  by  holder.']  The  holder 
may  expressly  renounce  his  rights  against  any  party  to 
the  instrument,  before,  at  or  after  its  maturity.  An 
absolute  and  unconditional  renunciation  of  his  rights 
against  the  principal  debtor  made  at  or  after  the  ma- 
turity of  the  instrument  discharges  the  instrument.  But 
a  renunciation  does  not  affect  the  rights  of  a  holder  in 
due  course  without  notice.  A  renunciation  must  be  in 
writing,  unless  the  instrument  is  delivered  up  to  the  per- 
son primarily  liable  thereon. 

Sec.  3175n.  [Cancellation;  unintentional;  burden  of 
proof.']  A  cancellation  made  unintentionally  or  under 
a  mistake,  or  without  authority  of  the  holder,  is  inoper- 
ative ;  but  where  an  instrument  or  any  signature  thereon 
appears  to  have  been  cancelled  the  burden  of  proof  lies 
on  the  party  who  alleges  that  the  cancellation  was  made 
unintentionally,  or  under  a  mistake  or  without  author- 
ity. 

Sec.  3175o.  [Alteration  of  instrument;  effect  of.] 
Where  a  negotiable  instrument  is  materially  altered 
without  the  assent  of  all  parties  liable  thereon,  it  is 
avoided,  except  as  against  a  party  who  has  himself  made, 


APPENDIX.  271 

authorized  or  assented  to  the  alteration  and  subsequent 
indorsers. 

But  when  an  instrument  has  been  materially  altered 
and  is  in  the  hands  of  a  holder  in  due  course,  not  a  party 
to  the  alteration,  he  may  enforce  payment  thereof  ac- 
cording to  its  original  tenor. 

Sec.  3175p.  [What  constitutes  a  material  alteration.] 
Any  alteration  which  changes : 

1.  The  date; 

2.  The  sum  payable,  either  for  principal  or  interest; 

3.  The  time  or  place  of  payment; 

4.  The  number  or  the  relations  of  the  parties; 

5.  The  medium  or  currency  in  which  payment  is  to 
be  made;  or  which  adds  a  place  of  payment  where  no 
place  of  payment  is  specified;  or  any  other  change  or 
addition  which  alters  the  effect  of  the  instrument  in  any 
respect,  is  a  material  alteration. 

SUBDIVISION  II.     BILLS  OF  EXCHANGE. 

RE-SUBDIVISION   I.      FORM   AND   INTERPRETATION. 

Sec.  3175q.  [Bill  of  exchange  defined.]  A  bill  of 
exchange  is  an  unconditional  order  in  writing  addressed 
by  one  person  to  another,  signed  by  the  person  giving  it, 
requiring  the  person  to  whom  it  is  addressed  to  pay  on 
demand  or  at  a  fixed  or  determinable  future  time  a  sum 
certain  in  money  to  order  or  to  bearer. 

Sec.  3175r.  [Bill  not  an  assignment  of  funds  in 
hands  of  drawee.]    A  bill  of  itself  does  not  operate  as 


272  APPENDIX. 

an  assignment  of  the  funds  in  the  hands  of  the  drawee 
available  for  the  payment  thereof,  and  the  drawee  is  not 
liable  on  the  bill  unless  and  until  he  accepts  the  same. 

Sec.  3175s.  [Bill  addressed  to  more  than  one  drawee.~\ 
A  bill  may  be  addressed  to  two  or  more  drawees  jointly, 
whether  they  are  partners  or  not,  but  not  to  two  or  more 
drawees  in  the  alternative  or  in  succession. 

Sec.  3175t.  [Inland  and  foreign  bills  of  exchange.] 
An  inland  bill  of  exchange  is  a  bill  which  is,  or  on  its 
face  purports  to  be,  both  drawn  and  payable  within  this 
state.  Any  other  bill  is  a  foreign  bill.  Unless  the  con- 
trary appears  on  the  face  of  the  bill,  the  holder  may 
treat  it  as  an  inland  bill. 

Sec.  3175u.  [When  bill  may  be  treated  as  promis- 
sory note.~\  Where  in  a  bill,  drawer  and  drawee  are 
the  same  person,  or  where  the  drawee  is  a  fictitious  per- 
son, or  a  person  not  having  capacity  to  contract,  the 
holder  may  treat  the  instrument,  at  his  option,  either  as 
a  bill  of  exchange  or  a  promissory  note. 

Sec.  3175v.  [Referee  in  case  of  need.]  The  drawer 
of  a  bill  and  any  indorser  may  insert  thereon  the  name  of 
a  person  to  whom  the  holder  may  resort  in  case  of  need, 
that  is  to  say,  in  case  the  bill  is  dishonored  by  nonac- 
ceptance  or  nonpayment.  Such  person  is  called  the 
referee  in  case  of  need.  It  is  in  the  option  of  the  holder 
to  resort  to  the  referee  in  case  of  need  or  not  as  he  may 
see  fit. 


APPENDIX.  273 

RE-SUBDIVISION   II.      ACCEPTANCE. 

Sec.  3175 w.  [Acceptance;  how  made,  etc.]  The  ac- 
ceptance of  a  bill  is  the  signification  by  the  drawee  of 
his  assent  to  the  order  of  the  drawer.  The  acceptance 
must  be  in  writing  and  signed  by  the  drawee.  It  must 
not  express  that  the  drawee  will  perform  his  promise  by 
any  other  means  than  the  payment  of  money. 

Sec.  3175x.  [Holder  entitled  to  acceptance  on  face 
of  bill]  The  holder  of  a  bill  presenting  the  same  for 
acceptance  may  require  that  the  acceptance  be  written 
on  the  bill,  and  if  such  request  is  refused,  may  treat  the 
bill  as  dishonored. 

Sec.  3175y.  [Acceptance  by  separate  instrument.] 
Where  an  acceptance  is  written  on  a  paper  other  than 
the  bill  itself,  it  does  not  bind  the  acceptor  except  in  fa- 
vor of  a  person  to  whom  it  is  shown  and  who,  on  the  faith 
thereof,  receives  the  bill  for  value. 

Sec.  3175z.  [Promise  to  accept;  when  equivalent  to 
acceptance.]  An  unconditional  promise  in  writing  to 
accept  a  bill  before  it  is  drawn  is  deemed  an  actual  ac- 
ceptance in  favor  of  every  person  who,  upon  the  faith 
thereof,  receives  the  bill  for  value. 

Sec.  3176.  [Time  allotted  drawee  to  accept.]  The 
drawee  is  allowed  twenty-four  hours  after  presentment 
in  which  to  decide  whether  or  not  he  will  accept  the  bill, 
but  the  acceptance,  if  given,  dates  as  of  the  day  of  pre- 
sentation. 

Sec.  3176a.  [Liability  of  drawee  retaining  or  de- 
stroying bill.]     Where  a  drawee  to  whom  a  bill  is  de- 


274  APPENDIX. 

livered  for  acceptance  destroys  the  same,  or  refuses 
within  twenty-four  hours  after  such  delivery,  or  within 
such  other  period  as  the  holder  may  allow,  to  return  the 
bill  accepted  or  nonaccepted  to  the  holder  he  will  be 
deemed  to  have  accepted  the  same. 

Sec.  3176b.  [Acceptance  of  incomplete  bill.]  A  bill 
may  be  accepted  before  it  has  been  signed  by  the  drawer, 
or  while  otherwise  incomplete,  or  when  it  is  overdue,  or 
after  it  has  been  dishonored  by  a  previous  refusal  to  ac- 
cept, or  by  nonpayment.  But  when  a  bill  payable  after 
sight  is  dishonored  by  nonacceptance  and  the  drawee 
subsequently  accepts  it,  the  holder,  in  the  absence  of  any 
different  agreement,  is  entitled  to  have  the  bill  accepted 
as  of  the  date  of  the  first  presentment. 

Sec.  3176c.  [Kinds  of  acceptances.]  An  acceptance 
is  either  general  or  qualified.  A  general  acceptance 
assents  without  qualification  to  the  order  of  the  drawer. 
A  qualified  acceptance  in  express  terms  varies  the  effect 
of  the  bill  as  drawn. 

Sec.  3176d.  [What  constitutes  a  general  accept- 
ance.] An  acceptance  to  pay  at  a  particular  place  is  a 
general  acceptance,  unless  it  expressly  states  that  the 
bill  is  to  be  paid  there  only  and  not  elsewhere. 

Sec.  3176e.  [Qualified  acceptance.]  An  acceptance 
is  qualified  which  is: 

1.  Conditional,  that  is  to  say,  wThich  makes  payment 
by  the  acceptor  dependent  on  the  fulfillment  of  a  condi- 
tion therein  stated; 

2.  Partial,  that  is  to  say,  an  acceptance  to  pay  part 
only  of  the  amount  for  which  the  bill  is  drawn; 


APPENDIX.  275 

3.  Local,  that  is  to  say,  an  acceptance  to  pay  only 
at  a  particular  place; 

4.  Qualified  as  to  time; 

5.  The  acceptance  of  some  one  or  more  of  the 
drawees  but  not  of  all. 

Sec.  3176f.  [Rights  of  parties  as  to  qualified  accept- 
ance.] The  holder  may  refuse  to  take  a  qualified  ac- 
ceptance, and  if  he  does  not  obtain  an  unqualified  ac- 
ceptance he  may  treat  the  bill  as  dishonored  by  nonac- 
ceptance.  Where  a  qualified  acceptance  is  taken,  the 
drawer  and  indorsers  are  discharged  from  liability  on  the 
bill,  unless  they  have  expressly  or  impliedly  authorized 
the  holder  to  take  a  qualified  acceptance  or  subsequently 
assent  thereto.  When  the  drawer  or  an  indorser  re- 
ceives notice  of  a  qualified  acceptance,  he  must,  within 
a  reasonable  time,  express  his  dissent  to  the  holder  or 
he  will  be  deemed  to  have  assented  thereto. 

RE-SUBDIVISION   III.       PRESENTMENT  FOR   ACCEPTANCE. 

Sec.  3176g.  [When  presentment  for  acceptance  must 
be  made.]     Presentment  for  acceptance  must  be  made: 

1.  Where  the  bill  is  payable  after  sight,  or  in  any 
other  case,  where  presentment  for  acceptance  is  neces- 
sary in  order  to  fix  the  maturity  of  the  instrument;  or, 

2.  Where  the  bill  expressly  stipulates  that  it  shall 
be  presented  for  acceptance;  or, 

3.  Where  the  bill  is  drawn  payable  elsewhere  than 
at  the  residence  or  place  of  business  of  the  drawee. 

In  no  other  case  is  presentment  for  acceptance  neces- 
sary in  order  to  render  any  party  to  the  bill  liable. 


276  APPENDIX. 

Sec.  3176h.  [  When  failure  to  present  releases  drawer 
and  indorser.]  Except  as  herein  otherwise  provided,  the 
holder  of  a  hill  which  is  required  by  the  next  preceding 
section  to  be  presented  for  acceptance,  must  either  pre- 
sent it  for  acceptance  or  negotiate  it  within  a  reasonable 
time.  If  he  fail  to  do  so,  the  drawer  and  all  indorsers 
are  discharged. 

Sec.  317Gi.  [Presentment;  how  made.]  Present- 
ment for  acceptance  must  be  made  by  or  on  behalf  of 
the  holder  at  a  reasonable  hour,  on  a  business  day  and 
before  the  bill  is  overdue,  to  the  drawee  or  some  person 
authorized  to  accept  or  refuse  acceptance  on  his  behalf; 
and, 

1.  Where  a  bill  is  addressed  to  two  or  more  drawees 
who  are  not  partners,  presentment  must  be  made  to  them 
all,  unless  one  has  authority  to  accept  or  refuse  accept- 
ance for  all,  in  which  case  presentment  may  be  made  to 
him  only. 

2.  Where  the  drawee  is  dead,  presentment  may  be 
made  to  his  personal  representative. 

3.  Where  the  drawee  has  been  adjudged  a  bankrupt 
or  an  insolvent  or  has  made  an  assignment  for  the  bene- 
fit of  creditors,  presentment  may  be  made  to  him  or  to 
his  trustee  or  assignee. 

Sec.  3176J.  [On  what  days  presentment  may  be 
made.]  A  bill  may  be  presented  for  acceptance  on  any 
day  on  which  negotiable  instruments  may  be  presented 
for  payment  under  the  provisions  of  section  thirty-one 
hundred  and  seventy-three  (q)    (3173(/),  and  thirty-one 


APPENDIX.  277 

hundred  and  seventy-four  (c)  (3174c)  of  this  chapter. 
When  Saturday  is  not  otherwise  a  holiday,  presentment 
for  acceptance  may  be  made  before  twelve  o'clock  noon 
on  that  day. 

Sec.  3176k.  [Presentment  when  time  is  insufficient.'] 
Where  the  holder  of  a  bill  drawn  payable  elsewhere  than 
at  the  place  of  business  or  the  residence  of  the  drawee 
has  not  time,  with  the  exercise  of  reasonable  diligence, 
to  present  the  bill  for  acceptance  before  presenting  it 
for  payment  on  the  day  that  it  falls  due,  the  delay  caused 
by  presenting  the  bill  for  acceptance  before  presenting 
it  for  payment  is  excused  and  does  not  discharge  the 
drawers  and  indorsers. 

Sec.  31761.  [Where  presentment  is  excused.]  Pre- 
sentment for  acceptance  is  excused  and  a  bill  may  be 
treated  as  dishonored  by  nonacceptance,  in  either  of  the 
following  cases: 

1.  Where  the  drawee  is  dead,  or  has  absconded,  or  is 
a  fictitious  person,  or  a  person  not  having  capacity  to 
contract  by  bill. 

2.  Where,  after  the  exercise  of  reasonable  diligence, 
presentment  can  not  be  made. 

3.  Where,  although  presentment  has  been  irregular, 
acceptance  has  been  refused  on  some  other  ground. 

Sec.  3176m.  [When  dishonored  by  nonacceptance.] 
A  bill  is  dishonored  by  nonacceptance: 

1.  When  it  is  duly  presented  for  acceptance  and  such 
an  acceptance  as  is  prescribed  by  this  chapter  is  refused 
or  cannot  be  obtained:  or, 


o78  APPENDIX. 

2.  When  presentment  for  acceptance  is  excused,  and 
the  bill  is  not  accepted. 

Sec.  3176n.  [Duty  of  holder  where  bill  not  accept- 
ed.] Where  a  bill  is  duly  presented  for  acceptance 
and  is  not  accepted  within  the  prescribed  time,  the  per- 
son presenting  it  must  treat  the  bill  as  dishonored  by 
nonacceptance  or  he  loses  the  right  of  recourse  against 
the  drawer  and  indorsers. 

Sec.  3176o.  [Eights  of  holder  where  bill  not  ac- 
cepted.] When  a  bill  is  dishonored  by  nonacceptance, 
an  immediate  right  of  recourse  against  the  drawer  and 
indorsers  accrues  to  the  holder  and  no  presentment  for 
payment  is  necessary. 

RE-SUBDIVISION  IV.      PROTEST. 

Sec.  3176p,  [In  what  cases  protest  necessary.] 
Where  a  foreign  bill  appearing  on  its  face  to  be  such  is 
dishonored  by  nonacceptance,  it  must  be  duly  protested 
for  nonacceptance,  and  where  such  a  bill,  which  has  not 
previously  been  dishonored  by  nonacceptance  is  dishon- 
ored by  nonpayment,  it  must  be  duly  protested  for  non- 
payment. If  it  is  not  so  protested,  the  drawer  and  in- 
dorsers are  discharged.  Where  a  bill  does  not  appear 
on  its  face  to  be  a  foreign  bill,  protest  thereof  in  case  of 
dishonor  is  unnecessary. 

Sec.  3176q.  [Protest;  how  made.']  The  protest  must 
be  annexed  to  the  bill,  or  must  contain  a  copy  thereof, 
and  must  be  under  the  hand  and  seal  of  the  notary  mak- 
ing it,  and  must  specify: 


APPENDIX.  279 

1.  The  time  and  place  of  presentment. 

2.  The  fact  that  presentment  was  made,  and  the 
manner  thereof. 

3.  The  cause  or  reason  for  protesting  the  bill. 

4.  The  demand  made,  and  the  answer  given,  if  any, 
or  the  fact  that  the  drawee  or  acceptor  could  not  be 
found. 

Sec.  3176r.  [Protest;  by  whom  made.]  Protest 
may  be  made  by: 

1.  A  notary  public;  or 

2.  By  any  respectable  resident  of  the  place  where 
the  bill  is  dishonored  in  the  presence  of  two  or  more  cred- 
ible witnesses. 

Sec.  3176s.  [Protest;  when  to  be  made.]  When  a 
bill  is  protested,  such  protest  must  be  made  on  the  day 
of  its  dishonor,  unless  delay  is  excused  as  herein  pro- 
vided. When  a  bill  has  been  duly  noted,  the  protest  may 
be  subsequently  extended  as  of  the  date  of  the  noting. 

Sec.  3176t.  [Protest;  where  made.]  A  bill  must  be 
protested  at  the  place  where  it  is  dishonored,  except  that 
when  a  bill  drawn  payable  at  the  place  of  business  or 
residence  of  some  person  other  than  the  drawee  has  been 
dishonored  by  nonacceptance,  it  must  be  protested  for 
nonpayment  at  the  place  where  it  is  expressed  to  be 
payable,  and  no  further  presentment  for  payment  to, 
or  demand  on,  the  drawee  is  necessary. 

Sec.  3176u.  [Protest  both  for  nonacceptance  and 
nonpayment.]    A  bill  which  has  been  protested  for  non- 


280  APPENDIX. 

acceptance  may  be  subsequently  protested  for  nonpay- 
ment. 

Sec.  3176v.  [Protest  before  maturity  where  acceptor 
insolvent. ]  Where  the  acceptor  has  been  adjudged  a 
bankrupt  or  an  insolvent  or  has  made  an  assignment  for 
the  benefit  of  creditors,  before  the  bill  matures,  the  holder 
may  cause  the  bill  to  be  protested  for  better  security 
against  the  drawer  and  indorsers. 

Sec.  3176w.  [When  protest  dispensed  with.]  Pro- 
test is  dispensed  with  by  any  circumstances  which  would 
dispense  with  notice  of  dishonor.  Delay  in  noting  or 
protesting  is  excused  when  delay  is  caused  by  circum- 
stances beyond  the  control  of  the  holder  and  not  im- 
putable to  his  default,  misconduct  or  negligence.  When 
the  cause  of  delay  ceases  to  operate,  the  bill  must  be 
noted  or  protested  with  reasonable  diligence. 

Sec.  3176x.  [Protest  where  bill  is  lost,  et  cetera.] 
Where  a  bill  is  lost  or  destroyed  or  is  wrongly  detained 
from  the  person  entitled  to  hold  it,  protest  may  be  made 
on  a  copy  or  written  particulars  thereof. 

RE-SUBDIVISION  V.     ACCEPTANCE  FOR   HONOR. 

Sec.  3176y.  [When  bill  may  be  accepted  for  honor.'] 
Where  a  bill  of  exchange  has  been  protested  for  dis- 
honor by  nonacceptance  or  protested  for  better  security 
and  is  not  overdue,  any  person  not  being  a  party  already 
liable  thereon  may,  with  the  consent  of  the  holder,  inter- 
vene and  accept  the  bill  supra  protest  for  the  honor  of 
any  party  liable  thereon  or  for  the  honor  of  the  person 
for  whose  account  the  bill  in  drawn.     The  acceptance 


APPENDIX.  281 

for  honor  may  be  for  part  only  of  the  sum  for  which  the 
bill  is  drawn;  and  where  there  has  been  an  acceptance 
for  honor  for  one  party,  there  may  be  a  further  accept- 
ance by  a  different  person  for  the  honor  of  another 
party. 

Sec.  3176z.  [Acceptance  for  honor;  how  made.~\  An 
acceptance  for  honor  supra  protest  must  be  in  writing 
and  indicate  that  it  is  an  acceptance  for  honor,  and  must 
be  signed  by  the  acceptor  for  honor. 

Sec.  3177.  [When  deemed  to  be  an  acceptance  for 
honor  of  the  drawer.]  Where  an  acceptance  for  honor 
does  not  expressly  state  for  whose  honor  it  is  made,  it  is 
deemed  to  be  an  acceptance  for  the  honor  of  the  drawer. 

Sec.  3177a.  [Liability  of  the  acceptor  for  honor.] 
The  acceptor  for  honor  is  liable  to  the  holder  and  to  all 
parties  to  the  bill  subsequent  to  the  party  for  whose 
honor  he  has  accepted. 

Sec.  3177b.  [Agreement  of  acceptance  for  honor.] 
The  acceptor  for  honor  by  such  acceptance  engages  that 
he  will  on  due  presentment  pay  the  bill  according  to  the 
terms  of  his  acceptance,  provided  it  shall  not  have  been 
paid  by  the  drawee,  and  provided,  also,  that  it  shall  have 
been  duly  presented  for  payment  and  protested  for  non- 
payment and  notice  of  dishonor  given  to  him. 

Sec.  3177c.  [Maturity  of  bill  payable  after  sight; 
accepted  for  honor.']  Where  a  bill  payable  after  sight 
is  accepted  for  honor,  its  maturity  is  calculated  from  the 
date  of  the  noting  for  nonacceptance  and  not  from  the 
date  of  the  acceptance  for  honor. 

Sec.  3177d.     [Protest  of  bill  accepted  for  honor,  et 


282  APPENDIX. 

cetera.']  Where  a  dishonored  bill  has  been  accepted  for 
honoT  supra  protest  or  contains  a  reference  in  case  of 
need,  it  must  be  protested  for  nonpayment  before  it  is 
presented  for  payment  to  the  acceptor  for  honor  or  ref- 
eree in  case  of  need. 

Sec.  3177e.  [Presentment  for  payment  to  acceptor 
for  honor;  how  made.]  Presentment  for  payment  to 
the  acceptor  for  honor  must  be  made  as  follows: 

1.  If  it  is  to  be  presented  in  the  place  where  the  pro- 
test for  nonpayment  was  made,  it  must  be  presented  not 
later  than  the  day  following  its  maturity. 

2.  If  it  is  to  be  presented  in  some  other  place  than 
the  place  where  it  was  protested,  then  it  must  be  for- 
warded within  the  time  specified  in  section  thirty-one 
hundred  and  seventy-four  (v)   (3174u). 

Sec.  3177f.  [When  delay  in  making  presentment  is 
excused.]  The  provisions  of  section  thirty-one  hundred 
and  seventy-three  (z)  (31732)  apply  where  there  is  de- 
lay in  making  presentment  to  the  acceptor  for  honor  or 
referee  in  case  of  need. 

Sec.  3177g.  [Dishonor  of  bill  by  acceptor  for  honor.] 
When  the  bill  is  dishonored  by  the  acceptor  for  honor, 
it  must  be  protested  for  nonpayment  by  him. 

RE-SUBDIVISION   VI.      PAYMENTS   FOR    HONOR. 

Sec.  3177h.  [Who  may  make  payment  for  honor.] 
Where  a  bill  has  been  protested  for  nonpayment  any 
person  may  intervene  and  pay  it  supra  protest  for  the 


APPENDIX.  283 

honor  of  any  person  liable  thereon  or  for  the  honor  of 
the  person  for  whose  account  it  was  drawn. 

Sec.  3177i.  [Payment  for  honor;  how  made.']  The 
payment  for  honor  supra  protest  in  order  to  operate  as 
such  and  not  as  a  mere  voluntary  payment  must  be  at- 
tested by  a  notarial  act  of  honor  which  may  be  appended 
to  the  protest  or  form  an  extension  to  it. 

Sec.  3177J.  [Declaration  before  payment  for  honor.] 
The  notarial  act  of  honor  must  be  founded  on  a  declara- 
tion made  by  the  payer  for  honor,  or  by  his  agent  in 
that  behalf  declaring  his  intention  to  pay  the  bill  for 
honor  and  for  whose  honor  he  pays. 

Sec.  3177k.  [Preference  of  parties  offering  to  pay 
for  honor. ,]  Where  two  or  more  persons  offer  to  pay 
a  bill  for  the  honor  of  different  parties,  the  person  whose 
payment  will  discharge  most  parties  to  the  bill  is  to  be 
given  the  preference. 

Sec.  31771.  [Effect  on  subsequent  parties  where  bill 
is  paid  for  honor.]  Where  a  bill  has  been  paid  for  honor 
all  parties  subsequent  to  the  party  for  whose  honor  it  is 
paid  are  discharged,  but  the  payer  for  honor  is  subro- 
gated for,  and  succeeds  to,  both  the  rights  and  duties  of 
the  holder  as  regards  the  party  for  whose  honor  he  pays 
and  all  parties  liable  to  the  latter. 

Sec.  3177m.  [Where  holder  refuses  to  receive  pay- 
ment supra  protest.]  Where  the  holder  of  a  bill  refuses 
to  receive  payment  supra  protest,  he  loses  his  right  of 
recourse  against  any  party  who  would  have  been  dis- 
charged by  such  payment. 

Sec.  3177n.    [Rights  of  payer  for  honor.]    The  payer 


284  APPENDIX. 

for  honor,  on  paying  to  the  holder  the  amount  of  the  bill 
and  the  notarial  expenses  incidental  to  its  dishonor,  is 
entitled  to  receive  both  the  bill  itself  and  the  protest. 

RE-SUBDIVISION   VII.      BILLS   IN   A  SET. 

Sec.  3177o.  [Bills  in  sets  constitute  one  bill.']  Where 
a  bill  is  drawn  in  a  set,  each  part  of  the  set  being  num- 
bered and  containing  a  reference  to  the  other  parts,  the 
whole  of  the  parts  constitutes  one  bill. 

Sec.  3177p.  [Rights  of  holders  where  different  parts 
are  negotiated.]  Where  two  or  more  parts  of  a  set  are 
negotiated  to  different  holders  in  due  course,  the  holder 
whose  title  first  accrues  is  as  between  such  holders  the 
true  owner  of  the  bill.  But  nothing  in  this  section  af- 
fects the  rights  of  a  person  who  in  due  course  accepts  or 
pays  the  part  first  presented  to  him. 

Sec.  3177q.  [Liability  of  holder  who  indorses  two  or 
more  parts  of  a  set  to  different  persons.]  Where  the 
holder  of  a  set  indorses  two  or  more  parts  to  different 
persons,  he  is  liable  on  every  such  part,  and  every  in- 
dorser  subsequent  to  him  is  liable  on  the  part  he  has 
himself  indorsed,  as  if  such  parts  were  separate  bills. 

Sec.  3177r.  [Acceptance  of  bills  drawn  in  sets.]  The 
acceptance  may  be  written  on  any  part  and  it  must  be 
written  on  one  part  only.  If  the  drawee  accepts  more 
than  one  part,  and  such  accepted  parts  are  negotiated 
to  different  holders  in  due  course,  he  is  liable  on  every 
such  part  as  if  it  were  a  separate  bill. 

Sec.  3177s.  [Payment  by  acceptor  of  bills  drawn  in 
sets.]    When  the  acceptor  of  a  bill  drawn  in  a  set  pays 


APPENDIX.  2S5 

it  without  requiring  the  part  bearing  his  acceptance  to 
be  delivered  up  to  him,  and  that  part  at  maturity  is  out- 
standing in  the  hands  of  a  holder  in  due  course,  he  is 
liable  to  the  holder  thereon. 

Sec.  3177t.  [Effect  of  discharging  one  of  a  set.] 
Except  as  herein  otherwise  provided,  where  any  one  part 
of  a  bill  drawn  in  a  set  is  discharged  by  payment  or  oth- 
erwise, the  whole  bill  is  discharged. 

SUBDIVISION    III.      PROMISSORY    NOTES 
AND  CHECKS. 

RE-SUBDIVISION   I.      FORM   AND   INTERPRETATION. 

Sec.  3177u.  [Proinissory  note  defined.]  A  nego- 
tiable promissory  note  within  the  meaning  of  this  chap- 
ter is  an  unconditional  promise  in  writing  made  by  one 
person  to  another,  signed  by  the  maker,  engaging  to  pay 
on  demand,  or  at  a  fixed  or  determinable  future  time, 
a  sum  certain  in  money  to  order  or  to  bearer.  Where  a 
note  is  drawn  to  the  maker's  own  order,  it  is  not  com- 
plete until  indorsed  by  him. 

Sec.  3177v.  [Chech  defined.]  A  check  is  a  bill  of 
exchange  drawn  on  a  bank  payable  on  demand.  Ex- 
cept as  herein  otherwise  provided,  the  provisions  of  this 
chapter  applicable  to  a  bill  of  exchange  payable  on  de- 
mand apply  to  a  check. 

Sec.  3177w.  [Within  what  time  a  check  must  be  pre- 
sented.] A  check  must  be  presented  for  payment  within 
a  reasonable  time  after  its  issue  or  the  drawer  will  be 


286  APPENDIX. 

discharged  from  liability  thereon  to  the  extent  of  the 
loss  caused  by  the  delay. 

Sec.  3177x.  [Certification  of  check;  effect  of.] 
Where  a  check  is  certified  by  the  bank  on  which  it  is 
drawn,  the  certification  is  equivalent  to  an  acceptance. 

Sec.  3177y.  [Effect  where  the  holder  of  check  pro- 
cures it  to  be  certified.]  Where  the  holder  of  a  check 
procures  it  to  be  accepted  or  certified,  the  drawer  and 
all  indorsers  are  discharged  from  liability  thereon. 

Sec.  3177z.  [Where  check  operates  as  an  assign- 
ment.] A  check  of  itself  does  not  operate  as  an  assign- 
ment of  any  part  of  the  funds  to  the  credit  of  the  drawer 
with  the  bank,  and  the  bank  is  not  liable  to  the  holder 
unless  and  until  it  accepts  or  certifies  the  check. 


SUBDIVISION  IV.  GENERAL  PROVISIONS. 

Sec.  3178.  [Definitions  and  meaning  of  terms.]  In 
this  chapter,  unless  the  context  otherwise  requires: 

"Acceptance"  means  an  acceptance  completed  by  de- 
livery or  notification; 

"Action"  includes  counter-claim  and  set-off; 

"Bank"  includes  any  person  or  association  of  persons 
carrying  on  the  business  of  banking  whether  incorpo- 
rated or  not; 

"Bearer"  means  the  person  in  possession  of  a  bill  or 
note  which  is  payable  to  bearer; 

"Bill"  means  a  bill  of  exchange,  and  "Note"  means 
negotiable  promissory  note; 


APPENDIX.  287 

"Delivery"  means  transfer  of  possession,  actual  or 
constructive,  from  one  person  to  another; 

"Holder"  means  the  payee  or  indorsee  of  a  bill  or 
note,  who  is  in  possession  of  it,  or  the  bearer  thereof; 

"Indorsement"  means  an  indorsement  completed  by 
delivery ; 

"Instrument"  means  negotiable  instrument; 

"Issue"  means  the  first  delivery  of  the  instrument, 
complete  in  form,  to  a  person  who  takes  it  as  a  holder; 

"Person"  includes  a  body  of  persons,  whether  incor- 
porated or  not; 

"Value"  means  valuable  consideration; 

"Written"  includes  printed  and  "writing"  includes 
print;  [95  v.  196,  April  17,  1902;  in  effect  January  1, 
1903.] 

Sec.  3178a.  [Person  primarily  liable  on  instrument.] 
The  person  "primarily"  liable  on  an  instrument  is  the 
person  who  by  the  terms  of  the  instrument  is  absolutely 
required  to  pay  the  same.  All  other  parties  are  "sec- 
ondarily" liable. 

Sec.  3178b.  [Reasonable  time;  what  constitutes.] 
In  determining  what  is  a  "reasonable"  time  or  an  "un- 
reasonable time"  regard  is  to  be  had  to  the  nature  of  the 
instrument,  the  usage  of  trade  or  business  (if  any),  with 
respect  to  such  instruments,  and  the  facts  of  the  particu- 
lar case. 

Sec.  3178c.  [Time;  how  computed;  when  last  day 
falls  on  holiday.]  Where  the  day  or  the  last  day  for  do- 
ing any  act  herein  required  or  permitted  to  be  done  falls 


288  APPENDIX. 

on  Sunday,  or  on  a  holiday,  the  act  may  be  done  on  the 
next  succeeding  secular  or  business  day. 

Sec.  3178d.  [Application  of  chapter.]  The  pro- 
visions of  this  chapter  do  not  apply  to  negotiable  instru- 
ments made  and  delivered  prior  to  the  taking  effect 
hereof. 

Sec.  3178e.  [Law  merchant ;  when  governs.]  In  any 
case  not  provided  for  in  this  chapter,  the  rules  of  the 
law  merchant  shall  govern. 

SUBDIVISION  V.     HOLIDAYS. 

Sec.  3178f.     [Holidays.]     The  following  days,  viz.: 

1.  The  first  day  of  January,  known  as  New  Year's 
day; 

2.  The  twenty-second  day  of  February,  known  as 
Washington's  birthday ; 

3.  The  thirtieth  day  of  May,  known  as  Decoration 
or  Memorial  day; 

4.  The  fourth  day  of  July,  known  as  Independence 
day; 

5.  The  first  Monday  of  September,  known  as  Labor 
day; 

6.  Tbe  twenty-fifth  day  of  December,  known  as 
Christmas  day; 

7.  Any  day  appointed  and  recommended  by  the  gov- 
ernor of  this  State  or  the  president  of  the  United  States 
as  a  day  of  fast  or  thanksgiving;  and 

8.  Any  day  which  may  hereafter  be  made  a  legal 
holiday,  shall,  for  the  purposes  of  this  chapter,  be  holi- 


APPENDIX.  289 

days;  but  if  said  days  firstly  (1),  secondly  (2),  thirdly 
(3),  fourthly  (4),  sixthly  (6)  and  eighthly  (8)  herein 
be  the  first  day  of  the  week  known  as  Sunday  the  next 
succeeding  secular  or  business  day  shall  be  a  holiday. 

SUBDIVISION  VI.  PATENT  RIGHT  NOTES. 

Sec.  3178g.  [Note  given  for  patent  right,  how  to  be 
written,  et  cetera.~\  A  promissory  note,  or  other  nego- 
tiable instrument,  the  consideration  for  which  consists 
in  whole  or  in  part,  of  the  right  to  make,  use,  or  vend  a 
patented  invention,  or  an  invention  claimed  to  be  pat- 
ented, shall  have  written  or  printed  prominently  and 
legibly,  across  the  face  thereof,  and  above  the  signature 
thereto,  the  words  "Given  for  a  patent  right;"  such  in- 
strument in  the  hands  of  any  purchaser  or  holder,  shall 
be  subject  to  the  same  defenses  as  it  would  be  in  the 
hands  of  the  original  owner  or  holder;  and  any  person 
who  purchases  or  becomes  the  holder  of  a  promissory 
note,  or  other  negotiable  instrument,  knowing  it  to  have 
been  given  for  the  consideration  aforesaid,  shall  hold  the 
same  subject  to  such  defenses,  although  the  words  "given 
for  a  patent  right"  are  not  written  or  printed  upon  its 
face. 


QUESTIONS  FOR  STUDENTS. 


The  questions  are  numbered  to  correspond  with  the  sections  in 
this  book.  The  answers  and  references  for  further  study  may 
be  obtained  by  referring  to  the  corresponding  sections. 

NEGOTIABLE  INSTRUMENTS. 

CHAPTER  I.      THE  SUBJECT  INTRODUCED  AND  DEFINED. 

746.  Explain  fully  what  is  meant  by  "negotiable  in- 
struments." How  do  they  differ  from  simple  contracts 
at  common  law  as  regards  assignment? 

747.  What  may  be  said  of  the  history  of  negotiable 
paper?  What  form  of  commercial  paper  was  first  used 
in  England?  What  was  necessary  in  England  to  es- 
tablish the  negotiability  of  promissory  notes?  Is  there 
such  a  statute  in  your  State? 

748.  State  what  is  the  purpose  answered  by  nego- 
tiable instruments. 

749.  Name  the  different  forms  of  commercial  or  ne- 
gotiable paper. 

750.  Define  a  bill  of  exchange;  explain  the  differ- 
ence between  foreign  and  inland  bills. 

751.  Write  out  a  bill  of  exchange  with  yourself  as 
drawer.  Explain  who  is  drawer,  drawee,  payee,  in- 
dorser,  acceptor,  indorsee,  and  holder. 

752.  Define  a  promissory  note,  and  distinguish  it 
from  a  bill  of  exchange. 

753.  Write  out  a  promissory  note  with  yourself  as 

291 


292  NEGOTIABLE    INSTRUMENTS. 

maker.     Name  and  explain  the  different  parties  to  a 
promissory  note. 

754.  Define  a  check,  and  distinguish  it  Prom  a  bill  of 
exchange.  Write  out  a  check  upon  your  local  banker  in 
the  customary  form. 

755.  Repeat  the  essentials  of  negotiability  as  given 
by  Professor  Walker. 

756.  Name  the  writers  on  Negotiable  Instruments, 
or  Commercial  Paper. 

CHAPTER  II.      ESSENTIALS  OF  BILLS  AND  NOTES. 

757.  What  can  you  say  as  regards  the  bill  or  note 
being  in  writing;  bearing  date;  and  signature?  What 
is  meant  by  ante-dating  and  post-dating,  and  what  ef- 
fect do  they  have  upon  the  note  or  bill? 

758.  Is  it  necessary  to  give  the  name  of  the  maker 
or  drawer  in  the  instrument?  What  will  take  the  place 
of  the  name?  If  the  signature  of  the  maker  is  in  the 
alternative  what  is  the  effect?  Explain  what  is  meant 
by,  and  distinguish  between  joint,  several,  and  joint  and 
several  notes.  What  may  be  said  as  to  the  name  of  the 
drawee  in  the  bill? 

759.  What  is  the  effect  if  no  person  is  stated  as 
payee?  May  an  instrument  be  made  payable  to  bearer, 
or  to  a  stated  officer?  If  the  name  of  the  payee  is  left 
blank  by  whom  may  it  be  filled  up? 

760.  In  what  must  bills  be  payable,  state  fully?  Is 
a  note  negotiable  which  calls  for  "gold  coin"  in  pay- 
ment? 

761.  What  may  be  said  about  the  validity  of  a  bill 
when  amount  is  payable  in  money  of  foreign  denomina- 


QUESTIONS  FOR  STUDENTS.  293 

tion?    What  is  meant  by  dollars  and  cents  in  the  United 
States? 

762.  Where  should  the  amount  payable  be  stated? 
In  case  of  a  difference  will  the  marginal  figures  or  the 
words  in  the  body  of  the  instrument  govern? 

763.  What  can  you  say  about  the  necessity  of  cer- 
tainty in  the  sum  payable? 

764.  Are  notes  written  with  "current  exchange;" 
for  the  payment  of  attorney  fees,  or  costs  of  collection, 
valid  under  the  rule  as  to  certainty  in  the  amount  paya- 
ble? What  is  the  effect  of  a  stipulation  allowing  the 
holder  to  confess  judgment  against  the  maker  on  de- 
fault? 

765.  What  can  you  say  as  to  the  necessity  of  the 
sum  being  payable  without  conditions?  Give  examples 
of  what  are,  and  what  are  not,  considered  conditions  at- 
taching to  the  sum  payable. 

766.  What  is  the  general  rule  as  to  a  note  payable 
"on  or  before"  a  given  date  being  negotiable?  In  part 
payments  of  installments? 

767.  What  is  meant  by  words  of  negotiability,  and 
why  are  they  necessary?  What  are  the  words  ordinarily 
used  to  indicate  negotiability?  Are  such  words  neces- 
sary by  statute  in  your  State? 

768.  Give  other  examples  of  words  of  negotiability. 
69.     What  may  be  said  as  to  the  necessity  of  con- 
sideration for  the  bill,  and  its  statement  in  the  instru- 
ment? 

770.  What  may  be  said  as  to  inserting  a  place  of 
payment  ? 


294  NEGOTIABLE    INSTRUMENTS. 

771.  What  is  the  effect  of  a  seal  on  commercial  pa- 
per? 

772.  What  is  the  oecessity  as  regards  witnesses  to 
the  signature  of  maker  or  drawer?  What  can  you  say 
as  to  the  delivery  of  the  hill '.  What  is  the  presumption 
as  regards  delivery,  and  how  may  this  presumption  be 
rebutted?  What  is  an  "escrow,"  and  may  commercial 
paper  be  so  delivered? 

773.  What  is  the  effect  of  notes  and  bills  executed 
in  blank?    Who  may  fill  them  up?    Whom  do  they  bind? 

774.  What  in  general  is  sufficient  to  constitute  the 
promise  to  pay  in  a  bill?    Illustrate  your  answer. 


CHAPTER  III.       THE  PARTIES. 

775.  What  general  rules  apply  to  bills  as  regards 
the  capacity  of  the  parties  to  make  them? 

770.  What  can  you  say  as  regards  commercial  pa- 
per executed  by  an  infant?  Is  the  contract  void  or  void- 
able? If  the  note  was  given  for  necessaries  what  may 
be  recovered?  What  is  the  effect  when  the  infant  is 
made  payee?  What  is  the  effect  of  the  ratification  of 
such  paper? 

777.  AVhat  can  you  say  as  to  the  validity  of  commer- 
cial paper  executed  by  an  insane  person? 

778.  At  common  law  what  was  the  capacity  of  a 
married  woman  to  execute  a  valid  bill?  Wrhat  is  the  ef- 
fect of  modern  statutes  in  this  regard? 

779.  Can  an  Alien  Enemy  be  a  party  to  valid  com- 
mercial paper?    Why  not? 


QUESTIONS  FOR  STUDENTS.  295 

780.  State  fully  and  explain  when  partners  have  im- 
plied power  to  execute  commerical  paper  in  the  firm 
name.  What  is  the  effect  of  partnership  paper  im- 
properly issued  in  the  hands  of  a  bona  fide  holder?  What 
is  the  proper  form  of  firm  signature? 

781.  Into  what  general  classes  are  corporations  di- 
vided? Distinguish  between  the  several  classes  of  cor- 
porations. What  governs  the  power  of  a  corporation  to 
issue  commercial  paper? 

782.  What  is  meant  by  "ultra  vires"  contracts? 
What  is  the  effect  of  paper  issued  ultra  vires?  Explain 
fully.  What  is  the  implied  power  of  a  corporation  to 
be  payee  or  indorsee  of  a  bill? 

783.  By  whom  may  corporations  be  represented? 
Discuss  the  implied  power  of  cashier,  president,  or  sec- 
retary to  act  for  the  corporation.  What  may  be  said 
as  to  the  proper  form  of  a  corporate  signature?  How 
must  bills  payable  to  a  corporation  be  indorsed? 

784.  Discuss  the  power  of  public  or  municipal  cor- 
porations to  make  and  receive  commercial  paper.  What 
is  the  better  rule  as  to  the  extent  of  the  implied  power  of 
a  municipal  corporation  to  issue  negotiable  paper  for 
borrowed  money? 

785.  Who  has  power  to  represent  the  municipal  cor- 
porations in  the  issuing  of  commercial  paper? 

786.  Discuss  the  power  of  Trustees,  Guardians,  and 
Executors  to  issue  commercial  paper  in  their  representa- 
tive capacity.  What  is  their  power  to  indorse  or  trans- 
fer the  paper  of  the  estate? 


J>96  NEGOTIABLE    INSTRUMENTS. 


CHAPTER  IV.       Till.  CONSIDERATION. 

787.  What  is  the  general  rule  as  regards  a  consid- 
eration for  commercial  paper? 

788.  Discuss  the  meaning  of  a  valuable  considera- 
tion, giving  examples  of  such  a  consideration  for  a  ne- 
gotiable instrument.  Give  some  examples  of  what  are 
not  valuable  considerations. 

789.  Give  instances  of  who  are  considered  holders 
of  commercial  paper  for  value.  What  may  be  said  as 
to  the  consideration  when  a  note  is  taken  for  a  pre-exist- 
ing debt,  or  for  collateral  security?  Mention  the  rules 
laid  down  by  Mr.  Daniel. 

790.  What  is  meant  by  a  bona  fide  holder  for  value 
without  notice?  Give  illustrations.  What  does  notice 
include?  What  is  the  effect  of  a  bill  being  overdue  at 
the  time  of  transfer?  What  is  the  status  of  a  holder 
with  notice  who  has  taken  from  one  without  notice? 
What  is  meant  by  immediate  parties;  remote  parties? 
What  defenses  are  available  against  remote  parties? 
How  is  privity  between  parties  created? 

791.  Explain  what  is  meant  by  accommodation  pa- 
per. What  rights  has  the  accommodation  party  against 
the  holder  of  the  note  to  which  he  has  become  a  party? 
What  are  his  rights  in  such  bill  before  its  negotiation? 

792.  Discuss  the  effect  of  absence  of  consideration, 
or  a  failure  of  consideration,  upon  the  note.  When  is 
partial  failure  a  defense  and  against  whom?  What  is 
the  effect  when  the  consideration  is  illegal?    When  void? 


QUESTIONS  FOR  STUDENTS.  297 

793.  Explain  and  discuss  the  effect  of  fraud  or 
duress  upon  the  validity  of  the  note  affected  with  it. 
Who  may  retain  a  bill  effected  with  fraud  against  the 
rightful  owner? 


CHAPTER    V.       ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

794.  State  the  purpose  of  acceptance. 

795.  What  is  the  meaning  and  effect  of  acceptance? 
Who  becomes  the  primary  debtor  by  acceptance? 

796.  State  fully  what  bills  must  be  presented  for 
acceptance. 

797.  Discuss  presentment  for  acceptance  as  regards, 
who  may  make,  where,  when,  and  within  what  time. 
What  is  means  by  reasonable  time?  May  the  drawee 
demand  to  see  the  bill?  What  is  the  necessity  of  the 
presentment  being  final? 

798.  Give  four  cases  in  which  presentment  may  be 
excused. 

799.  Discuss  the  acceptance  as  regards,  who  may 
accept,  when  he  may  accept,  what  the  holder  may  re- 
quire of  the  acceptor,  and  when  the  acceptance  is  com- 
pleted so  as  to  be  irrevocable.  What  is  the  usual  form 
of  acceptance?    When  will  an  acceptance  be  implied? 

800.  Explain  what  is  meant  by,  and  discuss,  accept- 
ances for  honor,  or  supra  protest.  What  must  the  ac- 
ceptor supra  protest  do  to  have  recourse  ?  If  conditional 
acceptance  is  consented  to  by  the  holder,  what  must  he 
do  to  hold  other  parties  liable? 

801.  Explain  and  discuss  fully  presentment  for  pay- 


298  NEGOTIABLE    INSTRUMENTS. 

ment.     When   is   a   bill   dishonored   by  non-payment? 
When  is  presentment  for  payment  unnecessary? 

TRANSFER. 

802.  State  generally,  in  what  ways  bills  may  be 
transferred. 

803.  Explain  and  discuss  transfer  by  act  of  law. 

804.  Explain  and  discuss  transfer  by  assignment. 
If  indorsement  is  subsequently  obtained,  what  governs 
as  regards  the  time  when  it  operates  as  a  negotiation  ? 

805.  What  is  the  meaning  of  transfer  by  negotia- 
tion, and  wThat  are  the  incidents  and  privileges  as  given 
by  Benjamin  in  his  edition  of  Chalmer's  Bills  and 
Notes?    When  is  a  bill  negotiable? 

806.  Name  and  describe  the  two  modes  of  negotia- 
tion.   Where  must  the  indorsement  be  written? 

807.  State  the  different  kinds  of  indorsements.  How 
may  a  blank  or  general  indorsement  be  converted  into 
a  special  one,  and  what  is  the  effect? 

808.  Explain  and  discuss  (a)  qualified,  (b)  condi- 
tional, and  (c)  restrictive  indorsements.  What  is  the 
effect  of  the  restrictive  indorsement  on  the  indorsee? 

809.  Who  must  negotiate  the  bill?  Explain  what  is 
meant  by  the  de  facto  holder. 

810.  To  whom  may  a  bill  be  indorsed? 

811.  When  may  a  bill  be  negotiated?  What  is  the 
presumption  as  to  when  it  was  negotiated? 

812.  What  may  be  said  as  to  the  negotiation  of  over- 
due paper?  When  are  bills  payable  in  installments 
deemed  overdue?    In  your  State  is  a  set-off  or  counter- 


QUESTIONS  FOR  STUDENTS.  299 

claim  an  equity  attaching  to  an  overdue  bill?  When  is 
lack  of  consideration  for  the  transfer  not  an  equity  at- 
taching to  the  overdue  bill? 

813.  What  does  the  indorser  warrant  on  negotia- 
tion? What  may  be  said  as  to  the  rights  of  the  indorsee? 
What  may  be  shown  as  against  the  de  facto  holder  to 
defeat  his  suit  ?  When  and  how  may  an  action  be  main- 
tained upon  a  lost  bill? 

CHAPTER   VI.      DUTIES    OF    THE    HOLDER. 

814.  What  are  the  general  duties  of  the  holder  of  a 
bill? 

815.  What  is  the  rule  to  ascertain  the  proper  date 
for  presentment?  Explain  the  effect  of  days  of  grace, 
or  holidays  on  the  date  of  maturity  of  the  bill. 

816.  What  may  be  said  as  to  the  mode  of  present- 
ment? 

PROTEST. 

817.  Explain  the  meaning  and  purpose  of  protest. 
What  is  the  effect  of  failure  to  protest  a  bill? 

818.  Explain  what  is  meant  by  noting  for  protest. 
Of  what  does  the  noting  consist? 

819.  State  what  the  certificate  of  protest  should  con- 
tain. Where  should  the  bill  be  protested?  What  law 
governs  in  case  of  conflict? 

820.  What  facts  are  evidenced  by  the  notarial  cer- 
tificate? What,  if  any,  statutes  in  your  State  in  regard 
to  this? 

821.  How  may  protest  be  waived  or  dispensed  with? 


300  NEGOTIABLE    INSTRUMENTS. 

822.  Explain  protest  for  better  security;  for  dis- 
honor supra  protest. 

NOTICE  OF   DISHONOR. 

823.  Explain  and  discuss  the  meaning  and  purpose 
of  notice  of  dishonor.  What  is  the  effect  of  a  failure 
to  give  due  notice? 

824.  What  are  the  elements  of  due  notice?  Describe 
each  fully.  When  notice  is  properly  given  by  the  holder 
for  whose  benefit  will  it  inure? 

825.  What  is  the  rule  as  regards  the  time  given  a 
party  other  than  the  holder  to  give  notice  of  dishonor? 
When  is  the  drawee  or  acceptor  deemed  the  agent  of  the 
holder  to  give  notice? 

82G.  State  and  explain  the  seven  instances  when  no- 
tice of  dishonor  will  be  dispensed  with  as  given  by  Ben- 
jamin in  his  edition  of  Chalmer's  Bills  and  Notes. 

827.  What  are  the  excuses  for  delay  in  the  giving 
of  notice? 

828.  By  what  laws  is  the  instrument  governed  as  re- 
gards notice  of  dishonor  in  case  of  conflict? 

PAYMENT. 

829.  What  may  be  said  as  to  the  duty  of  the  holder 
to  accept  payment  and  deliver  the  bill?  How  is  pay- 
ment distinguished  from  a  sale  or  transfer  of  the  bill? 

830.  State  who  may  make  or  receive  payment. 

831.  When  is  a  payment  properly  made,  and  what 
is  the  effect  of  such  a  payment?    When  the  payment  is 


QUESTIONS  FOR  STUDENTS.  301 

made  by  one  other  than  the  primary  obligor  what  is  its 
effect? 

832.  Give  the  three  rules  as  to  the  application  or  ap- 
propriation of  a  payment  when  there  are  two  or  more 
bills  held  by  the  holder. 

833.  Explain  and  discuss  when  the  payment  by  bill 
will  be  considered  absolute  or  conditional.  What  is  the 
effect  of  the  conditional  payment  on  the  original  bill? 
What  are  the  duties  of  the  holder  as  regards  the  bill 
taken  in  conditional  payment? 

CHAPTER  VII.      LIABILITIES  OF  PARTIES  AND  SPECIAL 
FORMS   OF  DISCHARGES. 

834.  Explain  and  discuss  the  liability  of  the  drawee 
to  the  drawer,  and  to  the  holder  before  acceptance. 

835.  Explain  the  liability  of  the  acceptor  to  the 
holder.  What  is  the  acceptor  precluded  from  denying 
as  against  a  holder  in  good  faith?  For  what  is  the  ac- 
ceptor liable  by  refusing  to  pay  the  accepted  bill? 

836.  Explain  and  discuss  fully  the  liability  of  the 
drawer  or  indorser  to  the  holder.  Who  are  considered 
indorsers  generally?  What  is  the  indorser  precluded 
from  setting  up  as  against  the  holder  in  good  faith? 
What  is  the  extent  of  indorser's  liability  on  dishonor  of 
the  bill? 

837.  Explain  and  discuss  what  is  meant  by  exchange 
and  re-exchange.  Are  promissory  notes  within  the  rule 
as  to  exchange? 

838.  What  may  be  said  as  to  the  rate  of  interest  re- 
coverable after  maturity? 


302  NEGOTIABLE    INSTRUMENTS. 

830.  Discuss  the  liability  assumed  by  a  person  who 
transfers  a  bill  by  delivery  only.  What  facts  does  he 
warrant  to  the  transferee? 

840.  What  may  be  said  of  the  liability  of  the  person 
accommodated  to  the  accommodation  party? 

841.  What  is  meant  by  a  discharge  of  a  bill,  and 
what  will  operate  as  such  discharge? 

842.  What  is  mentioned  as  a  discharge  of  a  surety 
to  a  bill? 

843.  Explain  what  is  meant  by  a  forgery;  by  an  al- 
teration. What  is  the  meaning  of  a  spoliation?  What 
is  the  effect  of  a  material  alteration?  Of  an  immaterial 
alteration?  What  may  the  holder  who  has  materially 
altered  a  bill  recover?  When  are  bona  fide  holders  pro- 
tected from  the  effect  of  forgeries  or  material  altera- 
tions? 

844.  At  common  law  what  is  the  time  limit  within 
which  a  suit  can  be  brought  on  a  bill?  When  does  time 
begin  to  run  as  regards  the  various  parties  to  the  bill? 
What  if  any  statute  in  your  State  in  regard  to  the  time 
within  which  suit  may  be  brought  on  a  bill? 

CHAPTER  VIII.       PROMISSORY  NOTES  AND  CHECKS  SPE- 
CIALLY CONSIDERED. 

845.  What  can  you  say  regarding  the  form  and  in- 
terpretation of  a  promissory  note?  Give  examples  of 
what  are  and  what  are  not  deemed  promissory  notes. 

846.  What  may  be  said  as  to  the  negotiability  of 
promissory  notes?  Wh«n  will  the  note  be  deemed  over- 
due? 


QUESTIONS    FOR    STUDENTS.  303 

847.  Describe  the  liability  of  the  maker  of  a  prom- 
issory note.  What  does  he  warrant  to  the  bona  fide 
holder? 

CHECKS. 

848.  Give  Tiedeman's  definition  of  a  check.  What 
is  the  effect  of  a  check  drawn  against  a  bank  in  which 
the  drawer  has  no  funds?  What  is  the  usual  form  of 
a  check?    When  is  a  check  payable  which  is  post-dated? 

849.  What  is  meant  by  a  certified  check?  What 
change  in  the  liability  of  the  bank  is  made  by  its  certi- 
fying a  check?  How,  and  by  whom  may  checks  be 
certified  ? 

850.  Are  checks  negotiable  instruments?  What  is 
the  effect  of  the  payee  adding  his  name  to  the  check 
at  the  time  of  payment? 

851.  Explain  the  duties  of  the  holder  of  a  check  as 
regards  presentment  for  payment,  notice  of  dishonor 
and  protest.  When  will  the  drawer  be  discharged  by 
failure  to  present  for  payment  or  to  give  notice  of  dis- 
honor? 

852.  Give  the  rules  governing  the  time  within  which 
the  check  must  be  presented  for  payment.  What  ex- 
cuses may  be  alleged  to  excuse  delay  in  presentment 
for  payment? 

853.  When  will  a  check  not  known  to  have  been 
dishonored  be  deemed  overdue?     Give  examples. 

854.  Explain  who  may  draw  checks  against  de- 
posits. 

855.  When  will  death  or  bankruptcy  of  the  drawer 
revoke  a  check? 


304.  NEGOTIABLE    INSTRUMENTS. 

H5<;.  Explain  the  rights  and  duties  of  the  banker 
as  regards  the  funds  of  depositors.  What  is  the  re- 
sponsibility of  the  bank  to  these  drawers  in  case  funds 
are  paid  out  on  a  forged  indorsement?  May  the  bank 
recover  money  paid  to  a  person  on  an  altered  check? 
Give  reason  \'n\-  your  answer.  What  may  be  said  as 
to  the  duty  of  the  bank  to  know  the  signatures  of  its 
depositors?  May  the  bolder  of  a  check  sue  the  bank 
for  a  refusal  to  pay  when  in  funds  J1  Give  reason  for 
answer.  May  the  bank  offset  an  account  against  the 
holder  of  a  check? 

857.  Discuss  and  explain  the  rights  and  liabilities 
of  the  drawer  of  a  check.  What  becomes  of  the  cheek 
when  paid  if 

858.  What  is  the  general  rule  applicable  when  a 
cheek  is  given  in  payment  of  a  debt? 


CHAPTER  IX.    PAPER  MONEY,  COUPON  BONDS,  AND  QUASI- 
NEGOTIABLE  PAPER. 

859.  Mention  the  various  kinds  of  paper  money  in 
use  in  the  United  States,  and  give  the  general  charac- 
teristics of  such  money  as  negotiable  instruments. 
What  does  the  transferor  of  a  bank-note  warrant? 

8G0.  Give  Tiedeman's  definition  of  a  coupon  bond. 
What  is  the  nature  of  the  coupon?  Who  may  issue 
coupon  bonds?  What,  in  general,  are  the  rights  of  a 
holder  of  a  coupon  bond? 

861.  Explain  the  method  of  transfer,  presentment 
for  payment  and  discharge  of  coupon  bonds.     After 


QUESTIONS    FOR    STUDENTS.  305 

maturity,   may   interest   be   collected   on   the   bond   or 
co u p on ? 

862.  Who  may  bring  an  action  on  the  bond?  May 
the  coupon  be  sued  on?  If  the  bond  is  invalid,  may  the 
original  consideration  be  recovered?  What  defenses 
may  be  set  up  by  a  municipal  corporation  in  an  action 
on  its  bonds? 

863.  Explain  what  is  meant  by  a  certificate  of  de- 
posit, and  discuss  its  effect  as  a  negotiable  instrument. 

864.  What  is  meant  by  a  bill  of  lading  being  quasi- 
negotiable?  Explain  fully  the  features  of  a  negotiable 
instrument  possessed  by  a  bill  of  lading.  What  if  any 
statute  in  your  State  regarding  bills  of  lading  as  ne- 
gotiable instruments? 

865.  Mention  the  negotiable  characteristics  of  cer- 
tificates of  stock. 

866.  What  may  be  said  as  to  warehouse  receipts 
possessing  some  of  the  features  of  negotiable  paper? 
Are  warehouse  receipts  negotiable  by  statute  in  your 
State? 

867.  Define  and  explain  letters  of  credit  and  cir- 
cular notes. 


THE  LAW  OF   SURETYSHIP  AND 
GUARANTY. 


CHAPTER    I.      THE    CONTRACT    DEFINED   AND    EXPLAINED. 

868.  Define  Suretyship  and  Guaranty;  and  explain 
and  distinguish  between  them.  Which  is  bound  with 
the  principal? 

869.  What  may  be  said  of  the  essentials  necessary 
to  the  contract  of  suretyship  or  guaranty?  What  can 
you  say  of  the  antiquity  of  such  contracts? 

870.  In  general,  who  may  become  sureties  or  guar- 
antors? In  case  an  individual  becomes  a  surety  con- 
trary to  a  statute  or  rule  of  court  will  his  obligation  be 
binding? 

871.  State  whether  or  not  a  consideration  is  neces- 
sary to  the  contract  of  guaranty  or  suretyship.  Dis- 
cuss what  will  and  what  will  not  be  deemed  a  sufficient 
consideration  to  hold  the  surety  or  guarantor. 

872.  What  is  the  effect  of  a  bond  given  when  not 
required,  or  in  a  different  form  from  the  one  prescribed? 
Illustrate. 

873.  When  may  the  name  of  the  surety  be  left  from 
the  written  obligation  and  he  still  be  bound?  When 
will  the  contract  of  suretyship  or  guaranty  be  implied? 

874.  When  is  parol  evidence  admissible  to  show  that 
a  party  of  a  joint  or  joint  and  several  note  is  a  surety? 

306 


QUESTIONS    FOR    STUDENTS.  307 

If  the  creditor  knows  of  the  fact  of  suretyship  and  does 
an  act  that  would  discharge  surety,  what  is  the  effect? 
What  is  the  rule  as  to  the  admissibility  of  parol  evi- 
dence where  the  party  has  added  "surety"  to  his  name? 
Where  he  has  added  "principal?" 

875.  Give  the  general  rule  as  to  the  surety  being 
estopped  to  deny  recitals  of  fact  in  his  written  obliga- 
tion. 

876.  Discuss  the  principles  governing  the  question 
of  the  negotiability  of  guaranties. 

877.  Explain  when  an  offer  of  guaranty  must  be 
accepted,  and  when  it  will  be  deemed  unnecessary. 

878.  What  may  be  said  as  to  the  form  or  character 
of  the  guaranty?  May  it  be  oral?  How  is  it  determined 
whether  or  not  a  guaranty  is  continuing  or  not?  Give 
illustrations. 

879.  Discuss  the  limitations  which  apply  to  the  sure- 
ty's contract  as  regards  time,  act  or  amount.  Give  il- 
lustrations. 

880.  Give  the  section  of  the  statute  of  frauds  that 
affects  the  contract  of  the  surety  or  guarantor.  Discuss 
the  principles  governing  the  question  whether  the  con- 
tract is  within  or  without  the  statute  of  frauds.  Illus- 
trate when  the  contract  must  be  in  writing,  and  when 
it  need  not  be  in  writing.  Where  the  surety  promises 
to  pay  the  debt  of  another  from  such  other's  property, 
need  the  contract  be  in  writing? 

881.  Explain  the  effect  of  the  surety's  contract  when 
it  is  within  the  statute  of  frauds,  and  not  in  writing. 
When  may  a  part  of  an  oral  promise  be  valid? 


308      SURETYSHIP  AND  GUARANTY. 

CHAPTER  II.    LIABILITY  OF  SURETY  OR  GUARANTOR — HOW 
DISCHARGED,  ETC. 

882.  What  is  the  general  rule  as  to  the  interpreta- 
tion of  the  contract  of  the  surety  or  guarantor?  What 
may  be  said  as  to  guarantor  and  surety  being  favorites 
of  the  law?  When  will  the  contract  have  a  retroactive 
effect? 

883.  When  may  the  surety  or  guarantor  be  sued 
with  the  principal,  and  before  the  creditor's  remedies 
against  the  principal  are  exhausted?  What  was  the 
Roman  Law  on  this  question?  When  the  guaranty  is 
to  insure  the  collection  of  a  debt,  or  of  the  collectibility 
of  a  note,  what  must  the  creditor  do  before  suing  the 
guarantor? 

884.  Explain  the  meaning  of  due  diligence  as  ap- 
plicable to  the  action  of  the  creditor  in  attempting  to 
collect  from  the  principal.  What  will  excuse  delay  on 
the  part  of  the  creditor  in  proceeding  against  the  prin- 
cipal? When  is  he  excused  from  looking  to  the  prin- 
cipal? 

885.  Explain  fully  the  liability  of  the  suret}^  for 
the  payment  of  overdue  notes,  and  for  the  rent  of  a 
tenant  who  holds  over.     Illustrate. 

886.  In  general,  what  is  the  extent  of  the  surety's 
liability  for  a  debt  or  on  a  bond?  When  may  he  be 
charged  with  interest? 

887.  State  the  extent  of  a  surety's  liability  for  a  dis- 
counted note.  If  the  note  signed  by  the  surety  is  di- 
verted from  its  purpose,  what  is  its  effect? 


QUESTIONS    FOR    STUDENTS.  309 

888.  Explain  and  discuss  the  liability  of  the  surety 
on  general  and  particular  guaranties.  Give  illustra- 
tions. What  is  the  effect  of  a  guaranty  given  to  one 
and  acted  on  by  several?  Bound  for  several  and  credit 
is  given  to  one?  What  is  the  general  rule  as  to  the 
extent  of  the  surety's  obligation? 

889.  Give  special  illustrations  of  the  liability  of  the 
surety. 

890.  Explain  when  the  death  of  the  guarantor  or 
surety  will  revoke  the  contract.  When  will  the  death 
of  the  guarantor  revoke  a  continuing  guaranty? 

891.  Explain  when  the  surety  may  be  sued  jointly 
with  the  principal.    When  he  cannot  be  sued  jointly. 

892.  Give  instances  when  a  court  of  equity  will 
charge  a  surety  not  chargeable  at  law.  When  it  will 
not. 

893.  The  law  of  what  place  governs  the  liability  oi 
the  surety? 

894.  What  is  the  effect  on  the  liability  of  the  surety 
when  the  principal  is  not  bound,  or  is  discharged?  What 
distinction  is  made  as  regards  the  reasons  which  dis- 
charge the  principal?  If  the  surety  is  indemnified,  will 
he  be  discharged? 

895.  What  may  be  said  as  to  the  necessity  of  demand 
on  the  principal  for  payment,  and  notice  of  default  to 
the  guarantor?  What  is  said  of  the  necessity  of  demand 
and  notice  where  the  guaranty  is  absolute?  When  is 
notice  and  demand  unnecessary?  What  notice  must  be 
given  when  necessary,  and  within  what  time? 

896.  Discuss  the  rules  applicable  to  determine  the 


310      SURETYSHir  AND  GUARANTY. 

liability  of  blank  indorsers  and  accommodation  parties 
to  commercial  paper.  To  what  extent  is  parol  evidence 
admissible  in  such  cases? 

897.  In  general,  what  are  the  methods  by  which 
surety  or  guarantor  may  be  discharged  from  his  obliga- 
tion ? 

898.  Explain  and  discuss  the  discharge  of  the  surety 
by  payment  of  the  debt  for  which  he  was  responsible. 
What  effect  has  a  valid  tender  of  the  amount  of  the 
debt  in  money  upon  the  liability  of  the  surety? 

899.  Explain  and  discuss  fully  the  discharge  of  the 
surety  by  the  creditor  giving  time  to  the  principal;  as 
regards,  1,  the  consideration;  2,  the  time. 

900.  State  some  exceptions  when  the  surety  is  not 
discharged  by  the  creditor  giving  time  to  the  principal. 
When  will  the  taking  of  a  new  note  for  the  debt  of  the 
principal  discharge  the  surety?  Will  the  taking  of  col- 
lateral security  by  the  creditor  discharge  the  surety? 
What  must  the  surety  set  up  to  be  discharged? 

901.  Explain  and  discuss  fully  the  discharge  of  the 
surety  or  guarantor  by  the  creditor  altering  the  con- 
tract of  the  surety.  Give  illustrations  of  alterations 
working  a  discharge  of  the  surety.  Of  alterations  not 
working  a  discharge. 

902.  Discuss  and  explain  fully  the  discharge  of  the 
surety  by  fraud,  misrepresentation  or  concealment,  and 
the  like  on  the  part  of  the  creditor,  or  by  the  principal 
with  the  knowledge  and  consent  of  the  creditor.  Give 
illustrations. 

903.  Discuss  and  explain  the  discharge  of  the  surety 


QUESTIONS  FOR  STUDENTS.  311 

by  the  creditor  relinquishing  securities  obtained  from  the 
principal  for  the  payment  of  the  debt.  What  is  the 
status  of  a  creditor  holding  a  pledge  or  lien  on  property 
of  the  principal?  Will  the  surety  be  discharged  pro 
tanto  in  case  the  security  released  is  less  than  the  amount 
of  the  debt?    Give  examples. 

904.  When  will  the  negligence  or  carelessness  of  the 
creditor  in  dealing  with  collateral  security  for  the  debt 
discharge  the  surety?    Give  examples. 


CHAPTER   III.     OF  THE   RIGHTS   OF   SURETIES   AND   GUAR- 
ANTORS— CONTRIBUTION    AND    SUBROGATION. 

905.  Mention  the  rights  of  sureties  and  guarantors. 

906.  Who  is  the  real  debtor  in  the  contract  of  sure- 
tyship? What  promise  is  implied  from  this  real  debtor? 
When  does  the  surety  have  an  action  for  indemnity 
against  the  principal?  Is  demand  or  notice  necessary 
prior  to  suit?  How  may  the  debt  be  paid  by  the  surety? 
In  case  of  a  compromise  of  the  debt  by  the  surety, 
what  amount  can  he  recover  from  the  principal?  Can 
he  recover  costs?     Consequential  damages? 

907.  If  the  surety  pays  in  installments,  what  are 
his  rights?  When  does  the  surety's  right  to  indemnity 
commence  as  against  the  principal's  demand  of  exemp- 
tion or  the  claims  of  third  parties  ?  What  are  the  rights 
of  a  volunteer  surety?  Of  the  surety  after  the  principal 
has  been  discharged  in  bankruptcy?  What  are  the  sure- 
ty's rights  in  equity  before  paying  the  debt  of  the  prin- 
cipal?    If  the  principal  was  not  liable  and  the  surety 


812      SURETYSHIP  AND  GUARANTY. 

pays  may  he  recover  indemnity?  May  the  claim  of  the 
surety  for  indemnity  be  barred  by  the  statute  of  limita- 
tions?    When  does  the  statute  begin  to  run? 

908.  Explain  and  discuss  the  rights  of  the  surety 
as  against  the  creditor.  In  your  State  is  there  any 
statute  authorizing  the  surety  to  notify  the  creditor  to 
commence  proceedings  against  the  principal? 

900.  Explain  the  nature  of  the  rights  of  surety  or 
guarantor  as  against  third  persons. 

910.  What  is  meant  by  the  right  to  contribution? 
What  is  a  pre-requisite  to  the  enforcement  of  contribu- 
tion? 

911.  Explain  who  are  considered  co-sureties.  Give 
illustrations.  To  what  extent  may  parol  evidence  be 
used  to  charge  or  release  one  from  contribution  as  co- 
surety? When  will  the  surety  be  denied  the  right  to 
enforce  contribution  from  the  co-sureties? 

912.  If  one  of  the  sureties  becomes  the  principal, 
what  is  the  effect?  If  the  principal  or  co-surety  is  not 
liable  for  the  debt  paid  by  the  surety  what  is  the  effect? 
If  indemnity  is  taken  by  one  co-surety  to  whose  benefit 
will  it  inure?  Does  it  matter  whether  such  indemnity  is 
taken  before  or  after  the  debt  is  paid? 

913.  Mention  the  other  equitable  rights  of  the  co- 
surety before  paying  the  debt.  How  is  the  amount  re- 
coverable by  the  surety  who  pays  the  debt  from  each 
of  the  co-sureties  determined?  What  is  the  rule  where 
the  sureties  are  bound  in  different  amounts  for  the  same 
obligation?  Where  may  the  suit  for  contribution  be 
brought,  and  who  are  proper  parties? 


QUESTIONS    FOR    STUDENTS.  313 

914.  What  is  the  nature  of  subrogation?  Explain 
fully  what  is  meant  by  the  right  to  subrogation.  To 
what  extent  is  the  rule  that  payment  discharges  a  debt 
modified  by  the  principle  of  subrogation? 

915.  Who  is  generally  entitled  to  subrogation?  How 
may  the  right  be  defeated?  What  is  necessary  to  be 
done  before  it  may  be  enforced? 

916.  If  denied  by  the  creditor,  how  may  the  right 
to  subrogation  be  enforced  by  the  surety? 

917.  Must  the  whole  debt  be  paid  before  the  right 
to  subrogation  is  complete?  When  will  the  right  not 
be  allowed?  Why  is  not  collateral  security  held  by  the 
creditor  discharged  by  the  payment  of  the  debt  by  the 
surety?  What  is  the  effect  of  taking  a  separate  indem- 
nity on  the  right  to  subrogation?  May  the  surety  pay- 
ing enforce  the  rights  of  the  creditor  against  a  co-surety 
under  the  principle  of  subrogation? 

918.  Explain  the  holdings  of  the  authorities  as  re- 
gards the  right  of  a  surety  paying  the  debt  after  it  has 
been  reduced  to  a  judgment  to  be  subrogated  to  the 
position  of  the  creditor  as  regards  such  judgment. 

919.  Does  the  right  to  subrogation  cover  all  the  se- 
curities held  by  the  creditor?  How  is  this  question  set- 
tled in  England?  What  are  the  sureties'  rights  in  a 
mortgage  held  by  the  creditor  as  security,  under  the 
principle  of  subrogation?  Is  the  surety  of  a  surety 
entitled  to  subrogation?  What  effect  will  notice  of  the 
surety's  right  to  subrogation  have  when  third  persons 
take  the  property  held  by  the  creditor  as  collateral,  with 
knowledge  of  its  character?    What  may  be  said  of  the 


314      SURETYSHIP  AND  GUARANTY. 

right   to  be  subrogated  to  securities  and  remedies  by 
sureties  for  administrators,  guardians,  and  the  like"? 

920.  Explain  and  discuss  the  right  of  the  creditor 
to  be  subrogated  to  securities  held  by  the  surety  from 
the  principal.  What  is  the  rule  when  such  security  is 
given  the  surety  to  indemnify  him  from  a  contingent 
liability?  If  the  surety  receives  the  indemnity  from  a 
stranger,  can  the  creditor  claim  subrogation? 


ABBREVIATIONS. 


(see  also  the  abbreviations  given  in  previous  numbers.) 

Admr.,  Admrs. — Administrator,  Administrators. 
Ads. — Ad  sectam;  at  the  suit  of. 

A.  &  E.,  or  Ad.  &  El. — Adolphus  and  Ellis'  Reports,  Eng- 
lish King's  Bench. 

B.  &  A.,  or  B.  &  Aid.,  or  Barn.  &  Aid. — Barnewall  and 
Alderson's  Reports,  English  King's  Bench. 

B.  &  P.,  or  Bos.  &  Pul. — Bosanquet  &  Puller's  Reports,  Eng- 
lish Common  Pleas. 

Barr. — Barr's  Reports,  Penna.  Supreme  Court,  Pa.  St.  Vols. 
1-10. 

Benj.'s  Chalmers  B.,  N.  &  C. — Benjamin's  Chalmers  Bills, 
Notes  and  Checks. 

Bing. — Bingham's  Reports,  English  Common  Pleas. 

Bing.   N.   C. — Bingham's  New  Cases,  Eng.   Common  Pleas. 

Black  (Ind.) — Black's  Reports,  Indiana  Supreme  Court,  Ind. 
Reports,  Vols.  30-55. 

Bligh  (H.  L.)— Bligh's  Reports,  English  House  of  Lords. 

Brock. — Brockenborough's  Reports,  Marshall's  U.  S.  Circuit 
Court  Decisions. 

Bush  (Ky.) — Bush's  Reports,  Kentucky  Court  of  Appeals. 

C.  B.  N.  S. — Common  Bench  Reports,  New  Series,  English. 
C.  &  K. — Carrington  and  Kirwan's  Reports,  English   Nisi 

Prius. 

Caine's — Caine's  Reports,  N.  Y.  Supreme  Court. 

Cal. — California  State  Reports,  Supreme  Court. 

Car.  &  M. — Carrington  and  Marshman's  Reports,  Eng.  Nisi 
Prius. 

Cranch — Cranch's  Reports,  United  States  Supreme  Court. 

Co.  or  Co.  Rep. — Coke's  Report. 

315 


316  ABBREVIATIONS. 

Cont.  or  Contra — Contra;  to  the  contrary. 

Conn. — Connecticut  Supreme  Court  of  Errors  Reports. 

Cold,    or    Coldw. — Coldwell's    Reports,    Tennessee    Supreme 

Court. 

Cromp.    &   Jer. — Crompton    and    Jervis's    Reports,    English 

Exchequer. 

Dana — Dana's   Reports,  Kentucky   Court  of  Appeals. 
Day — Day's  Reports,  Connecticut  Supreme  Court  of  Errors, 
Conn.  Reports,  vols.  1-21. 

Daniel   or  Daniel's   Neg.    Inst. — Daniel's   Negotiable   Instru- 
ments. 

Den.  or  Denio — Denio's  Reports,  N.  Y.  Supreme  Court  and 
Court  of  Appeals. 

Dev.  &  Bat. — Deveraux  and  Battle's  Reports,  North   Caro- 
lina Supreme  Court,  law  and  equity. 

Dillon.  Mun.  Corp. — Dillon's  Municipal  Corporations. 

Eng.  (Akr.) — English's  Reports,  Arkansas  Supreme  Court; 
Arkansas  Reports,  vols.  6-13. 

Ex.  or  Exch. — English  Exchequer  Reports. 

Et  al. — Et  Alius;  and  another. 

Ex  rel. — Ex  relatione;  upon  the  information. 

Gray — Gray's  Reports,  Massachusetts  Supreme  Court;  Mass. 
Supreme  Court,  vols.  67-82. 

Gill   and   J.    or  Gill  and   John. — Gill  &   Johnson's   Reports, 
Maryland  Court  of  Appeals. 

Harr.     (Del.) — Harrington's    Reports,    Delaware     Superior 
Court  and  Court  of  Errors  and  Appeals. 

Haywood,  (Tenn.) — Haywood's  Reports,  Tennessee  Supreme 
Court  of  Errors  and  Appeals. 

Heisk. — Heiskell's  Reports,  Tennessee  Supreme  Court. 

Hen.    &    Mum. — Hening    &    Mumford's    Reports,    Virginia 
Court  of  Appeals. 

Hilt.— Hilton's  Reports,  N.  Y.  Common  Pleas. 

Hurl.   &   Gor. — Hurlstone's   &   Gordon's   Reports   Eng.   Ex- 
chequer. 

Humph. — Humphrey's   Reports,   Tennessee   Supreme   Court. 

Id.  or  idem. — The  same. 


ABBREVIATIONS.  317 

L.  J.  C.  P. — Law  Journal  New  Series,  English  Common  Pleas. 

L.  R. — Law  Reports,  Eng.  Chancery  Appeal  Case. 

L.  R.  Q.  B.  D. — Law  Rep.  Queen's  Bench  Division  Eng. 
Supreme  Court  of  Judicature. 

M.  &  M. — Moody  &  Malkin's  Nisi  Prius  Cases,  English 
Courts. 

McCord  L. — McCord's  Law  Reports,  South  Carolina  Con- 
stitutional Court  and  Court  of  Appeals. 

Mich. — Michigan  Reports,  Supreme  Court. 

Miss. — Mississippi  Reports,  High  Court  of  Errors  and  Ap- 
peals, and  Supreme  Court. 

Nat.  or  Natl. — National. 

N.  Y.  S.  C,  or  N.  Y.  Supr.  C— New  York  Supreme  Court 
Reports. 

Nott  &  M.— Nott  &  McCord's  Reports,  S.  C.  Constitutional 
Court. 

Parson's  N.  &  B. — Parson's  Notes  and  Bills. 

Pen. — Pennington's  Reports,  New  Jersey  Supreme  Court. 

Penr.  &  Watts — Penrose  and  Watts'  Reports,  Penna.  Supreme 
Court. 

Rich.  Law — Richardson's  Law  Reports,  South  Carolina  Ct. 
of  Appeals. 

Rich.  Eq. — Richardson's  Equity  Reports,  S.  C.  Court  of 
Appeals. 

Sm.  Lead.  Cas. — Smith's  Leading  Cases. 

Smith,  E.  D.,  or  E.  D.  Smith— E.  D.  Smith's  Reports,  N.  Y. 
Common  Pleas. 

Saund. — Saunder's  Reports,  English  King's  Bench. 

Sandf.  Ch. — Sandford's  Chancery  Reports,  New  York  Chan- 
cery. 

Sur.  &  Guar. — Suretyship  and  Guaranty. 

Taunt. — Taunton's  Reports,  English  Common  Pleas. 

Tiedeman,  Com.  Pap. — Tiedeman's  Commercial  Paper. 

Tenn. — Tennessee  Reports,  Supreme  Court. 

Upp.  Can. — Upper  Canada  Reports,  Queen's  Bench. 

Va. — Virginia  Reports,  Supreme  Court. 

Vr.  or  Vroom — Vroom's  Reports,  N.  J.  Supreme  Court  and 
Errors  and  Appeals. 


318  ABBREVIATIONS. 

Wels.,  Hurl.  &  Gor. — Welsby,  Hurlstone,  and  Gordon's  Re- 
ports, English  Exchequer. 

Wils. — Wilson's  Reports,  Eng.  King's  Bench. 

Willes — Willes'  Reports,  English  Courts. 

Wood's  C.  C— Wood's  U.  S.  Circuit  Court  Reports. 

Y.  &  C. — Younge  &  Collyer's  Reports,  Exchequer  Equity, 
English. 

Yerg. — Yerger's  Reports,  Tennessee  Supreme  Court. 

Zabr. — Zabriskie's  Reports,  N.  J.  Supreme  Court  and  Errors 
and  Appeals. 


CASE  BOOK— VOL.  VI. 

ILLUSTRATIVE   CASES 

ON 

NEGOTIABLE 
INSTRUMENTS 


AND 


PRINCIPAL  AND 
SURETY 


Selected  and  Arranged  to  Complement 
Vol.  VI,  Cyclopedia  of  Law 


BY 

CHARLES   E.  CHADMAN,  LL.  M. 


PUBLISHERS 

DE  BOWER-ELLIOTT  COMPANY 
CHICAGO,  U.  S.  A. 


Copyright,  1907 

By  Frederick  J.  Drake  &  Co. 

Chicago 


CONTENTS. 


PART  I. 

NEGOTIABLE  INSTRUMENTS. 
CHAPTER   I. 

HISTORY,   DEFINITION  AND  PURPOSE  OF  NEGOTIABLE  INSTRUMENTS. 

PAGE 

Goodwin  v.  Robarts   ^ . .  1 

CHAPTER  II. 

ESSENTIALS   OF   BILLS   AND   NOTES. 

Taylor  v.   Dobbins    7 

Brown  v.  The  Butchers '  and  Drovers '  Bank 7 

De  La  Courtier  v.  Bellamy 8 

M'Call  v.  Taylor  9 

Brown  v.  Gilman    11 

Hasbrook  v.  Palmer   13 

Rhodes  v.   Lindley    15 

Smith  v.  Nightingale   17 

Dodge  v.  Emerson    18 

Bank  v.  Armstrong 20 

Maule  v.  Crawford  23 

Benjamin  v.  Tillman   2% 

Poplewell  v.   Wilson  28 

Burson  v.  Huntington    28 

Currier  v.  Lockwood    41 

"Wheatley  v.  Strobe  49 

iii 


IV  CONTENTS 

CHAPTER   III. 

THE  PARTIES. 

CHAPTER  IV. 

THE   CONSIDERATION.  PAGE 

Widoe  v.  Webb   ,__._ 54 

CHAPTER  V. 

ACCEPTANCE     AND    TRANSFER    CONSIDERED. 

Luff  v.   Pope    61 

Price  v.  Neal   64 

Montelius  v.  Charles 66 

Cheek  v.  Roper   70 

Davis  v.  Clarke  71 

Coolidge  et  al.  v.  Payson  et  al 74 

Spaulding  v.   Andrews    81 

Spear  v.  Pratt  82 

Hough  v.  Loring 84 

Petit  v.  Benson   87 

Hoare  et  al.  v.  Cazenove  et  al 87 

Curtis  v.  Sprague 92 

French  v.  Turner   94 

Hull  v.  Conover    98 

Hotel  Co.  v.  Bailey 98 

Harris  v.  Bradley   104 

Erwin  v.  Downs   105 

Fish  v.  First  National  Bank  of  Detroit 106 

Watson  v.  Chesire 107 

Claflin  v.  Wilson  113 

CHAPTER  VI. 

DUTIES  OF  THE  HOLDER. 

Lawrence  v.  Langley   116 

M  usson  v.  Lake  118 

Salt  Springs  National  Bank  v.  Burton 136 

Carter  v.  The  Union  Bank 141 

Lawson  v.  The  Farmers'  Bank  of  Salem 143 

Morgan  v.  Bank  of  Louisville 154 


CONTENTS  V 

CHAPTER  VII. 

LIABILITIES  OP  PARTIES  AND  SPECIAL  FORMS  OF  DISCHARGES. 

PAGE 

Price  v.  Neal  158 

Hotel  Co.  v.  Bailey 158 

Ex  Parte  Clarke  158 

Dumont  v.  Williamson    159 

Merriam  v.  Wolcott   163 

Mead  v.  Young  166 

Harsh  et  al.  v.  Klepper 172 


PART  II. 

CASES  ON  THE  LAW  OF  SURETYSHIP  AND  GUARANTY. 

CHAPTER   I. 

THE    CONTRACT    DEFINED    AND    EXPLAINED. 

Campbell  v.  Sherman  (Hornet's  Appeal) 179 

Saint  et  al.  v.  Wheeler  &  Wilson  Mfg.  Co 182 

Smith  v.  Shelden  et  al 199 

Aud  v.  Magruder   203 

Kimball  v.  Newell 208 

Trimble  v.  Rudy 212 

Davis  et  al.  v.  Wells,  Fargo  &  Co 214 

Union  Bank  of  Louisiana  v.  Coster's  Executors 224 

Hooker  et  al.  v.  Russell  232 

Gibbs  et  al.  v.  Blanchard 235 

CHAPTER   II. 

LIABILITY  OF  SURETY  AND  GUARANTOR — HOW  DISCHARGED,  ETC. 

Smith  et  al.  v.  Van  Wyck 242 

The  People  of  the  State  of  New  York  v.  Backus  et  al 244 

McMurray  et  al.  v.  Noyes  250 

Roberts  v.  Hawkins   252 

Taylor  et  al.  v.  Wetmore  et  al 259 

Morrison  et  al.  v.  Arons  et  al 262 

Aetna  Ins.  Co.  v.  Fowler  et  al 265 


VI 


CONTENTS 


PAGE 

Russell  v.  Annable 2G8 

I  ».i\  is  et  al.  v.  Wells,  Fargo  &  Co 271 

Sauy.r  v.  Brownell    271 

Spurgeon  v.  Smitha  et  al 273 

Deering  v.   Moore   277 

Dodd  v.  Winn   279 

McComb  v.  Kittridge 282 

Pearl  v.  Deacon   285 

Pain  v.  Packard  et  al 288 

CHAPTER  III. 

OP  THE  RIGHTS  OF  SURETIES   AND  GUARANTORS — CONTRIBUTION 
AND  SUBROGATION. 

Lansdale  v.   Cox    290 

Johnson  v.  Johnson    292 

Moore   v.   Brunei-    295 

Emmert  v.  Thompson   297 


CASES   ON 

Negotiable  Instruments 

AND 

PRINCIPAL  AND   SURETY. 


PART  I. 

NEGOTIABLE  INSTRUMENTS. 


CHAPTER  I. 

HISTORY,   DEFINITION   AND    PURPOSE   OF   NEGOTIABLE 
INSTRUMENTS.* 

GOODWIN  v.  ROBARTS. 

Law  Reports  10  Court  of  Ex.  76;  Law  Reports  10  Court  of  Ex. 
Chamber,  337;  House  of  Lords  1  App.  Cas.  476.     1875-6. 

Cockburn,  Chief  Justice.  Bills  of  exchange  are  known  to  be 
of  comparative  modern  origin,  having  been  first  brought  into  use, 
so  far  as  it  is  at  present  known,  by  the  Florentines  in  the  twelfth, 
and  by  the  Venetians  about  the  thirteenth  century.  The  use  of 
them  gradually  found  its  way  into  France,  and,  still  later,  and 
but  slowly,  into  England.  We  find  it  stated  in  a  law  tract  by 
Mr.  Macleod,  entitled  ' '  Specimen  of  a  Digest  of  the  Law  of  Bills 
of  Exchange,"  printed,  we  believe,  as  a  report  to  the  govern- 
ment, but  which,  from  its  research  and  ability,  deserves  to  be 
produced  in  a  form  calculated  to  insure  a  wider  circulation,  that 
Richard  Malynes,  a  London  merchant,  who  published  a  work 
called  the  "Les  Mercatoria,"  in  1622,  and  who  gives  a  full  ac- 
count of  these  bills  as  used  by  the  merchants  of  Amsterdam, 
Hamburg,  and  other  places,  expressly  states  that  such  bills  were 


*  See  Sees.  746-756,  Vol.  6,  Cyclopedia  of  Law. 

1 


2  HISTORY,  DEFINITION,  ETC. 

not  used  in  England.  There  is  reason  fo  think,  however,  that 
this  is  a  mistake.  Mr.  Macleod  shows  that  promissory  notes, 
payable  to  bearer,  or  to  a  man  and  his  assigns,  were  known  in 
the  time  of  Edward  J  V.  Indeed,  as  early  as  the  statute  of  3  Rich. 
II.,  I'll.  3,  bills  ol*  exchange  are  referred  to  as  a  means  of  convey- 
ing money  out  of  the  realm,  though  not  as  a  process  in  use 
among  English  merchants.  Bu1  the  fact  that  a  London  mer- 
chant,  writing  expressly  on  the  law  merchant,  was  unaware  of 
the  use  of  the  bills  of  exchange  in  this  country,  shows  thai 
use  at  the  time  he  wrote  must  have  been  limited.  According  to 
Professor  Story,  who  herein  is,  no  doubt,  perfectly  right,  "the 
introduction  and  use  of  bills  of  exchange,"  as  indeed  it  was 
everywhere  else,  "seems  to  have  been  founded  on  the  mere  prac- 
tice of  merchants,  and  gradually  to  have  acquired  the  force  of  a 
custom."  With  the  development  of  English  commerce  the  use  of 
these  most  convenient  instruments  of  commercial  traffic  would,  of 
course,  increase ;  yet,  according  to  Mr.  Chitty,  the  earliest  case  on 
the  subject  to  be  found  in  the  English  books  is  that  of  Martin  v. 
Boure,  (1603)  (Cro.  Jac.,  6,  (1603))  in  the  first  James  I.  Up  to 
this  time  the  practice  of  making  these  bills  negotiable  by  in- 
dorsement had  been  unknown,  and  the  earlier  bills  are  found 
to  be  made  payable  to  a  man  and  his  assigns,  though  in  some 
instances  to  bearer. 

But  about  this  period — that  is  to  say,  at  the  close  of  the  six- 
teenth or  the  commencement  of  the  seventeenth  century — the 
practice  of  making  bills  payable  to  order,  and  transferring  them 
by  indorsement,  took  its  rise.  Hartmann,  in  a  very  learned  work 
on  bills  of  exchange,  recently  published  in  Germany,  states  that 
the  first  known  mention  of  the  indorsement  of  these  instruments 
occurs  in  the  Neapolitan  Pragmatica  of  1607.  Slavery,  cited  by 
Mons.  Nouguier,  in  his  work,  "De  Lettres  des  Change,"  had 
assigned  to  it  a  later  date,  namely,  1620.  From  its  obvious  con- 
venience this  practice  speedily  came  into  general  use,  and,  as  part 
of  the  general  custom  of  merchants,  received  the  sanction  of  our 
courts.  At  first  the  use  of  bills  of  exchange  seemed  to  have  been 
confined  to  foreign  bills  between  English  and  foreign  merchants. 
It  was  afterwards  extended  to  domestic  bills  between  traders,  and 
finally  to  bills  of  all  persons,  whether  traders  or  not.  (Chitty 
Bills  (8th  ed.)  13.) 


GOODWIN  v.  ROBARTS.  3 

In  the  meantime,  promissory  notes  had  also  come  into  use,  dif- 
fering herein  from  bills  of  exchange :  That  they  were  not  drawn 
upon  a  third  party,  but  contained  a  simple  promise  to  pay  by  the 
maker,  resting,  therefore,  upon  the  security  of  the  maker  alone. 
They  were  at  first  made  payable  to  the  bearer,  but  when  the 
practice  of  making  bills  of  exchange  payable  to  order,  and  mak- 
ing them  transferable  by  indorsement,  had  once  become  estab- 
lished, the  practice  of  making  promissory  notes  payable  to  order, 
and  of  transferring  them  by  indorsement,  as  had  been  done  with 
bills  of  exchange,  speedily  prevailed.  And  for  some  time  the 
courts  of  law  acted  upon  the  usage  with  reference  to  promissory 
notes,  as  well  as  with  reference  to  bills  of  exchange. 

In  1680,  in  the  case  of  Sheldon  v.  Hentley  (2  Show.,  160),  an 
action  was  brought  on  a  note  under  seal  by  which  the  defendant 
promised  to  pay  to  bearer  £100,  and  it  was  objected  that  the  note 
was  void  because  not  payable  to  a  specific  person.  But  it  was 
said  by  the  court:  "Traditio  facit  chartam  loqui,  and  by  the 
delivery  he  (the  maker)  expounds  the  person  before  meant;  as 
when  a  merchant  promises  to  pay  to  the  bearer  of  the  note,  any 
one  that  brings  the  note  shall  be  paid."  Jones,  J.,  said  that  "it 
was  the  custom  of  merchants  that  made  that  good." 

In  Bromwich  v.  Lloyd  (2  Lutw.,  1582),  the  plaintiff  declared 
upon  the  custom  of  merchants  in  London  on  a  note  for  money 
payable  on  demand,  and  recovered;  and  Treby,  C.  J.,  said  that 
bills  of  exchange  were  originally  between  foreigners  and  mer- 
chants trading  with  the  English.  Afterwards,  when  such  bills 
came  to  be  more  frequent,  then  they  were  allowed  between 
merchants  trading  in  England,  and  afterwards  between  any 
traders  whatsoever,  and  now  between  any  persons,  whether 
trading  or  not;  and  therefore  the  plaintiff  need  not  allege 
any  custom,  for  now  those  bills  were  of  that  general  use  that 
upon  an  indebitatus  assumpsit  they  may  be  given  in  evidence 
upon  the  trial."  To  which  Powell,  J.,  added:  "On  indebita- 
tus assumpsit  for  money  received  to  the  use  of  plaintiff  the 
bill  may  be  left  to  the  jury  to  determine  whether  it  was  given  for 
value  received."  In  Williams  v.  Williams,  Carth.  269,  where  the 
plaintiff  brought  his  action  as  indorsee  against  the  payee  and  in- 
dorser  of  a  promissory  note,  declaring  on  the  custom  of  mer- 
chants, it  was  objected  on  error  that,  the  note  having  been  made 


4  HISTORY,  DEFINITION,  ETC. 

in  London,  the  custom,  if  any,  should  have  been  laid  as  the  cus- 
tom of  London.  In  was  answered  "thai  this  custom  of  merchants 
was  part  of  the  common  Law,  and  the  court  would  take  notice  of 
it  ex-officio;  and  therefore  it  was  needless  to  set  forth  the  custom 
specially  in  the  declaration,  bu1  it  was  sufficienl  to  say  that  such 
a  person  'secundum  iisum  e1  consuetudincm  mercatorum,'  drew 
the  bill."    And  the  plaintiff  had  judgment. 

Thus  far  the  practice  of  merchants,  traders  and  others  of  treat- 
ing promissory  notes,  whether  payable  to  bearer  or  order,  on  the 
same  footing  as  bills  of  exchange,  had  received  the  sanction  of  the 
courts,  but,  Holt  having  beeome  child'  justice,  a  somewhat  un- 
seemly contlict  arose  between  him  and  the  merchants  as  to  the 
negotiability  of  promissory  notes,  whether  payable  to  order  or  to 
hearer;  the  chief  justice  taking  what  must  now  he  admitted  to 
have  been  a  narrow-minded  view  of  the  matter,  setting  his  face 
strongly  against  the  negotiability  of  these  instruments,  contrary, 
as  we  are  told  by  authority,  to  the  opinion  of  Westminster  Hall, 
and  in  a  series  of  successive  cases  persisting  in  holding  them  not 
negotiable  by  indorsement  or  delivery. 

The  inconvenience  to  trade  arising  therefrom  led  to  the  passing 
of  the  statute  of  3  and  4  Anne,  e.  9,  whereby  promissory  notes 
were  made  capable  of  being  assigned  by  indorsement  or  made 
payable  to  bearer,  and  such  assignment  was  thus  rendered  valid 
beyond  dispute  or  difficulty.  It  is  obvious  from  the  preamble  of 
the  statute,  which  merely  recites  that  ' '  it  had  been  held  that  such 
notes  were  not  within  the  custom  of  merchants,"  that  these  deci- 
sions were  not  acceptable  to  the  profession  or  the  country.  Nor 
can  there  be  much  doubt  that  by  the  usage  prevalent  amongst 
merchants  these  notes  had  been  treated  as  securities  negotiable  by 
the  customary  method  of  assignment,  as  much  as  bills  of  ex- 
change, properly  so-called.  The  statute  of  Anne  may,  indeed, 
practically  speaking,  be  looked  upon  as  a  declaratory  statute,  con- 
tinuing the  decisions  prior  to  the  time  of  Lord  Holt. 

We  now  arrive  at  an  epoch  when  a  new  form  of  security  for 
money,  namely,  goldsmiths'  or  bankers'  notes,  came  into  general 
use.  Holding  them  to  he  part  of  the  currency  of  the  country  as 
cash,  Lord  Mansfield  and  the  court  of  king's  bench  had  no  diffi- 
culty in  holding  in  Miller  v.  Race  (1  Burrows,  452  (1758)),  that 
the  property  in  such  a  note  passes,  like  that  in  cash,  by  delivery, 


GOODWIN  v.  ROBARTS.  5 

and  that  a  party  taking  it  bona  fide,  and  for  value,  is  conse- 
quently entitled  to  hold  it  against  a  former  owner  from  whom  it 
has  been  stolen. 

In  like  manner  it  was  held,  in  Collins  v.  Martin  (1  Bos.  &  P. 
648  (1797)),  that  where  bills  indorsed  in  blank  had  been  depos- 
ited with  a  banker,  to  be  received  when  due,  and  the  latter  had 
pledged  them  with  another  banker  as  security  for  a  loan,  the 
owner  could  not  bring  trover  to  recover  them  from  the  holder. 
Both  these  decisions,  of  course,  proceeded  on  the  ground  that  the 
property  in  the  bank  note  payable  to  bearer  passed  by  delivery, 
that  in  the  bill  of  exchange  by  indorsement  in  blank,  provided  the 
acquisition  had  been  made  bona  fide. 

A  similar  question  arose  in  Wookey  v.  Pole  (Barn.  &  Aid.,  1 
(1818)),  in  respect  of  an  exchequer  bill,  notoriously  a  security 
of  modern  growth.  These  securities  being  made  in  favor  of  blank 
or  order,  contained  this  clause,  ' '  if  the  blank  is  not  filled  up,  the 
bill  will  be  paid  to  bearer. ' '  Such  an  exchequer  bill  having  been 
placed,  without  the  blank  being  filled  up,  in  the  hands  of  the 
plaintiff's  agent,  had  been  deposited  by  him  with  the  defendants, 
on  a  bona  fide  advance  of  money.  It  was  held  by  three  judges 
of  the  queen's  bench — (Bayley,  J.,  dissentiente) — that  an  ex- 
chequer bill  was  a  negotiable  security,  and  judgment  was  there- 
fore given  for  the  defendants.  The  judgment  of  Holroyd,  J., 
goes  fully  into  the  subject,  pointing  out  the  distinction  between 
money  and  instruments  which  are  the  representatives  of  money 
and  other  forms  of  property.  "The  courts,"  he  says,  "have  con- 
sidered these  instruments  either  promises  or  orders  for  the  pay- 
ment of  money,  or  instruments  entitling  the  holder  to  a  sum  of 
money,  as  being  appendages  to  money,  and  following  the  nature 
of  their  principal."  After  referring  to  the  authorities,  he  pro- 
ceeds: "These  authorities  show  that  not  only  money  itself  may 
pass,  and  the  right  to  it  may  arise,  by  currency  alone,  but, 
further,  that  these  mercantile  instruments,  which  entitle  the 
bearer  of  them  to  money,  may  also  pass,  and  the  right  to  them 
may  arise,  in  like  manner,  by  currency  or  delivery.  These  de- 
cisions proceed  upon  the  nature  of  the  property  (i.  e.,  money)  to 
which  such  instruments  gives  the  right,  and  which  is  in  itself 
current,  and  the  effect  of  the  instruments,  which  either  give  to 


(]  HISTORY,  DEFINITION,  ETC. 

their  holders,  merely  as  such,  a  right  to  receive  the  money,  or 
specify  them  as  the  persons  entitled  to  receive  it." 

Another  very  remarkable  instance  of  the  efficacy  of  usage  is 
to  be  found  in  much  nmiv  recent  times.  It  is  notorious  that,  with 
the  exception  of  the  Bank  of  England,  the  system  of  bank- 
in--  has  recently  undergone  an  entire  change.  Instead  of  the 
banker  issuing  his  own  notes  in  return  for  the  money  of  the  cus- 
tomer deposited  willi  him.  lie  gives  credit  in  account  to  the  de- 
positor, and  Leaves  it  to  the  latter  to  draw  upon  him,  to  bearer 
or  order,  by  what  is  now  called  a  "check."  Upon  this  state 
of  things  the  genera]  course  of  dealing  between  bankers  and  their 
customers  lias  attached  incidents  previously  unknown,  and  these. 
by  the  decisions  of  the  courts,  have  become  fixed  law.  Thus, 
while  an  ordinary  drawee,  although  in  possession  of  funds  of  the 
drawer,  is  not  hound  to  accept,  unless  by  his  own  agreement  or 
consent,  the  banker,  if  he  lias  funds,  is  bound  to  pay  on  presen- 
tation of  a  check  on  demand.  Even  admission  of  funds  is  not  suf- 
ficient to  bind  .in  ordinary  drawee,  while  it  is  sufficient  with  a 
hanker;  and  the  money  deposited  with  a  banker  is  not  only  money 
Lent,  but  the  banker  is  hound  to  pay  it  when  called  for  by  the 
drafl  of  the  customer.  See  Pott  v.  Clegg,  16  Mees.  &  W.,  321. 
Besides  this,  a  custom  has  grown  up  among  bankers  themselves  of 
marking  checks  as  good  for  the  purposes  of  clearance  by  which 
they  become  bound  to  one  another.  Though  not  immediately  to 
the  present  purpose,  bills  of  lading  may  also  be  referred  to  as  an 
instance  of  how  general  mercantile  usage  may  give  effect  to  a 
writing  which  without  it  would  not  have  had  that  effect  at  com- 
mon Law.  It  is  from  mercantile  usage,  as  proved  in  evidence,  and 
ratified  by  judicial  decision  in  the  great  case  of  Lickbarrow  v. 
Mason  (2  Term.  II.  (>:}),  that  the  efficacy  of  bills  of  lading  to  pass 
the  property  in  goods  is  derived. 

It  thus  appears  that  all  these  instruments,  which  are  said  to 
have  derived  their  negotiability  from  the  law  merchant,  had  their 
origin,  and  that  at  no  very  remote  period,  in  mercantile  usage, 
and  were  adopted  into  the  law  by  our  courts  as  being  in  conform- 
ity with  the  usages  of  trade;  of  which,  if  it  were  needed,  a 
further  confirmation  might  be  found  in  the  fact  that  according  to 
the  old  form  of  declaring  on  bills  of  exchange,  the  declaration  al- 
ways was  founded  on  the  customs  of  merchants. 


CHAPTER  II. 

ESSENTIALS  OF  BILLS  AND  NOTES. 

Must  be  in  writing,  and  signed* 

TAYLOR  v.  DOBBINS. 

1  Strange,  399.    1716. 

In  ease  upon  a  promissoiy  note,  the  declaration  ran,  that  the 
defendant  made  a  note,  et  manu  sua  propria  scripsit.  Exception 
was  taken,  that  since  the  statute  he  should  have  said  that  the  de- 
fendant signed  the  note,  but  the  Court  held  it  well  enough,  be- 
cause laid  to  be  wrote  with  his  own  hand,  and  there  needs  no  sub- 
scription in  that  case,  for  it  is  sufficient  his  name  is  in  any  part 
of  it.  I,  F.  S.,  promise  to  pay,  is  as  good  as  I  promise  to  pay, 
subscribed  F.  S. 


BROWN  v.  THE  BUTCHERS'  AND  DROVERS'  BANK. 

6  Hill,  443.     1844. 

On  error  from. the  Superior  Court  of  the  city  of  New  York, 
where  the  Butchers'  and  Drovers'  Bank  sued  Brown  as  the  in- 
dorser  of  a  bill  of  exchange,  and  recovered  judgment.  The  in- 
dorsement was  made  with  a  lead  pencil,  and  in  figures,  thus,  ' '  1. 
2.  8.,"  no  name  being  written.  Evidence  was  given  strongly 
tending  to  show  that  the  figures  were  in  Brown's  handwriting, 
and  that  he  meant  they  should  bind  him  as  indorser,  though  it 
also  appeared  he  could  write.  The  Court  below  charged  the 
jury  that,  if  they  believed  the  figures  upon  the  bill  were  made 
by  Brown,  as  a  substitute  for  his  proper  name,  intending  thereby 
to  bind  himself  as  indorser,  he  was  liable.  Exception.  The  jury 
found  a  verdict  for  the  plaintiffs  below,  on  which  judgment  was 
rendered,  and  Brown  thereupon  brought  error. 

*  See  Sec.  757,  Vol.  6,  Cyclopedia  of  Law. 

7 


8  ESSENTIALS    OF    BILLS    AND    NOTES. 

Nelson,  C.  J.  It  has  been  expressly  decided  that  an  indorsement 
written  in  pencil  is  sufficient:  Geary  v.  Physic,  5  Barn.  &  Cress. 
234;  and  also  that  it  may  be  made  by  a  mark:  George  v.  Surrey, 
1  Mood  &  Malk.  516.  In  a  recent  case  in  the  K.  B.  it  was  held 
that  a  mark  was  a  good  signing  within  the  statute  of  frauds;  and 
the  Court  refused  to  allow  an  inquiry  into  the  fact  whether  the 
party  could  write,  saying  that  would  make  no  difference:  Baker 
v.  Dening,  8  Adol.  &  Ellis,  94;  and  see  Harrison  v.  Harrison,  8 
Ves.  186 ;  Addy  v.  Grix,  lb.  504. 

These  cases  fully  sustain  the  ruling  of  the  Court  below.  They 
show,  I  think,  that  a  person  may  become  bound  by  any  mark  or 
designation  he  thinks  proper  to  adopt,  provided  it  be  used  as  a 
substitute  for  his  name,  and  he  intend  to  bind  himself. 

Judgment  affirmed. 


The  Date  is  Not  Essential  to  a  Bill  or  Note* 

DE  LA  COURTIER  v.  BELLAMY. 
Reported  in  2  Showers  411.    1683. 

Action  on  the  case  on  a  bill  of  exchange  from  parts  beyond 
the  seas,  payable  at  double  usance  from  the  date  thereof:  custom 
alleged  accordingly;  and  the  fact  was  alleged  to  be,  that  the  party 
beyond  the  sea  drew  such  a  bill  such  a  day,  and  the  same  was 
afterward  presented  to,  and  accepted  by  the  defendant, 

And  exception  was  taken,  that  the  date  of  the  bill  was  not  set 
forth. 

And  per  totam  Curiam  held,  it  was  well  enough,  and  they 
would  intend  it  dated  at  the  time  of  drawing  it. 

Judgment  for  the  plaintiff. 


*  See  Sec.  757,  Vol.  6,  Cyclopedia  of  Law.     Also  Michigan  Ins.  Co. 
v.  Leavenworth,  30  Vt.  It;  Cowing  v.  Altman,  71  N.  Y.  441. 


McCALL    v.    TAYLOR.  9 

Parties  to  a  Bill  or  Note  should  be  Ascertainable* 
M'CALL  v.  TAYLOR. 

19  Common  Bench,  301;  115  Eng.  C.  L.,  301.     1865. 
This  was  an  action  upon  an  instrument  in  the  following  form, 
which  was  declared  on  as  a  bill  of  exchange  and  also  as  a  promis- 
sory note: 

"£300.00. 

"Four  months  after  date,  pay  to  my  order  the  sum  of  Three 
hundred  pounds,  for  value  received. 
"To  Captain  Taylor, 

"Ship  Jasper." 

Across  this  document  was  written,  in  the  handwriting  of  the 
defendant,  the  words  "Accepted,  William  Taylor." 

There  was  also  a  count  for  goods  sold  and  delivered,  and  the 
ordinary  pleas. 

The  cause  was  tried  before  Byles,  J.,  at  the  sittings  at  Guild- 
hall after  the  last  Hilary  Term.  The  plaintiff  was  a  ship-chan- 
dler and  provision  merchant.  The  defendant  was  the  captain 
(and  it  was  suggested  owner  also)  of  the  ship  Jasper.  It  ap- 
peared that  the  plaintiff  had,  in  September,  1862,  pursuant  to 
orders  received  through  one  Milne,  the  ship's  broker,  delivered 
goods  to  the  amount  of  299?.  19s.  2d.  on  board  that  vessel  for 
San  Francisco,  and  had  received  in  payment  a  bill  at  six  months 
accepted  by  one  Bailey,  which  bill  was  not  paid  at  maturity; 
and  that  the  instrument  declared  on  was  given  to  the  plaintiff  by 
Milne  about  six  months  afterwards.  It  also  appeared  that  Bailey 
had  been  debited  for  the  goods  in  the  plaintiff's  books,  and  that 
an  invoice  had  been  delivered  charging  Bailey  as  the  debtor. 
There  was  no  evidence  whatever  to  show  that  the  defendant  had 
any  interest  in  the  goods. 

Per  Curiam.  I  am  of  opinion  that  this  rule  should  be  dis- 
charged. The  instrument  in  question  is  declared  upon  as  a  bill 
of  exchange,  and  also  as  a  promissory  note.  It  was  in  this  form, 
"Four  months  after  date,  pay  to  my  order  the  sum  of  three 
hundred  pounds,  for  value  received, ' '  and  it  was  addressed  to  the 


*  See  Sec.  758-759,  Vol.  6,  Cyclopedia  of  Law. 


10  ESSENTIALS    OF    BILLS    AND    NOTES. 

defendant,  but  it  bad  no  date  and  no  drawer's  name.  Across  it 
was  written  an  acceptance  by  the  defendant. 

The  question  is,  whether  tin-  holder  of  this  document  has  a 
right  to  declare  on  it  either  as  a  bill  of  exchange  or  as  a  promis- 
sory note.  It  is  clearly  not  a  bill  of  exchange,  and  in  form  it  is 
not  a  promissory  note.  If  I  could  be  clearly  satisfied  that  I 
should  be  giving  effect  to  the  intention  of  the  parties  by  holding 
this  instrument  to  be  a  promissory  note,  I  would  endeavor  so  to 
construe  it.  But  I  am  aware  of  no  case,  and  the  industry  of  the 
learned  counsel  has  discovered  none,  which  warrants  us  in  hold- 
ing this  to  be  either  the  one  or  the  other.  It  is  an  inchoate  and 
imperfect  instrument.  If  the  holder  had  authority  to  make  it  a 
complete  instrument  either  ;is  a  bill  or  a  note,  he  was  at  liberty 
to  do  so;  but,  if  he  had  no  such  authority,  he  might  if  he 
attempted  to  do  so  render  himself  liable  to  a  charge  of 
forgery.  The  case  of  Stoessiger  v.  The  South  Eastern  Rail- 
way Company  seems  to  me  to  be  precisely  in  point,  without 
going  into  any  of  the  other  cases.  Nothing  is  clearer  to  my 
mind  than  that,  in  the  ordinary  case  of  an  acceptance  with 
the  drawer's  name  in  blank,  it  is  important,  in  order  to  con- 
stitute a  contract,  that  it  should  be  known  who  is  to  be  the 
drawer.  It  may  have  been  important  here  that  the  instrument 
should  be  tilled  up  as  a  bill  drawn  by  the  owner  of  the  ship  or  the 
broker  upon  the  captain.  And  it  may  be  that  the  plaintiff  had  no 
authority  to  add  his  name  as  the  drawer.  But,  whatever  may 
have  been  the  particular  circumstances  under  which  this  docu- 
ment was  given,  I  act  upon  the  case  I  have  referred  to.  As  it 
stands,  the  thing  is  inchoate  and  incomplete,  and  affords  no 
foundation  for  the  holder  to  sue  upon  it. 

Willes,  J.    I  am  entirely  of  the  same  opinion. 

Byles,  J.  I  am  of  the  same  opinion.  I  thought  at  the  trial, 
and  still  think,  that  the  instrumenl  in  question  could  not  be 
declared  on  as  either  a  bill  of  exchange  or  a  promissory  note. 
It  is  not  like  a  hill  accepted  in  blank. 

Montague  Smith,  J.  I  also  think  this  case  is  not  distinguish- 
able from  Stoessiger  v.  The  South  Eastern  Railway  Company, 
supra.  There,  upon  an  instrument  precisely  similar  to  this,  ex- 
cept that  there  it  was  dated,  Ld.  Campbell  says:  "It  is  not  a  bill 
of  exchange;  there  is  neither  drawer  nor  payee.  Nor  is  it  a  prom- 


BROWN    v.    GILMAN.  11 

issory  note  to  pay  any  one  who  might  happen  to  be  bearer ;  that 
Cruttenden  should  become  liable  generally  to  the  bearer,  was 
quite  contrary  to  his  intention."  So  here,  I  think  we  should 
be  going  entirely  against  the  intention  of  the  defendant  if  we 
were  to  hold  him  liable  upon  this  instrument  as  upon  a  promis- 
sory note  payable  to  bearer. 

Rule.    Discharged. 


BROWN  v.  GILMAN. 
13  Mass.  158.    1816. 

Action  of  assumpsit  on  the  following  writing: 

"Boston,  15th  May,  1810. 
"Good  for  one  hundred  and  twenty-six  dollars  on  demand. 
Gilman  &  Hoyt." 

Parker,  C.  J.,  delivered  the  opinion  of  the  Court.  The  ques- 
tion in  this  case  is  whether  the  plaintiff  can  recover  without 
showing  any  title  to  the  promise  declared  upon;  or  any  rela- 
tion or  connection  with  the  debtor,  from  which  a  presumption 
might  be  drawn,  that  the  promise  declared  on  was  made  to  him. 
We  put  out  of  the  case  the  circumstances  proved  at  the  trial, 
which  probably  had  some  influence  in  producing  the  non-suit. 
Those  circumstances  were  proper  for  the  consideration  of  the 
jury,  if  it  were  necessary  to  give  them  any  weight.  We  de- 
termine altogether  upon  the  character  of  the  paper,  upon  the 
production  of  which  the  plaintiff  is  willing  to  rest  his  cause. 

It  is  not  a  negotiable  promissory  note.  If  it  were,  and  had 
the  name  of  the  promisee  on  the  back,  the  possession  of  it  would 
be  sufficient  prima  facie  evidence  of  the  plaintiff's  title. 

It  is  not  a  note  payable  to  bearer,  which  would  be  sufficient 
evidence  of  a  promise  to  pay  the  holder  unless  suspicion  was 
thrown  upon  his  title  by  the  maker. 

It  is  not  then  any  contract  known  in  the  law  which  ex  proprio 
vigore  constitutes  a  promise  to  whomsoever  shall  produce  it. 

Its  legal  effect  is  nothing  more  than  that  of  a  memorandum 
between  the  parties  to  it  to  operate  as  a  promise  to  pay  money, 


12  ESSENTIALS    OF    BILLS    AND    NOTES. 

as  a  receipt  for  money,  or  as  proof  of  a  sum  of  money  to  be 
mted  for,  according  to  the  evidence  offered,  to  show  the 
intention  of  both  parties  when  it  is  made.  On  a  count  for 
money  lent,  money  had  and  received,  etc.,  it  would  be  con- 
clusive evidence  of  so  much  due,  unless  the  party  signing  it 
should  prove  that  it  was  given  with  a  different  intent.  The 
present  plaintiff  has  not  shown  that  it  was  given  to  him.  It 
may  have  been  picked  up  in  the  street,  or  he  may  have  pur- 
loined  it  from  the  rightful  owner. 

Authorities  have  been  read  to  show  that  where  a  contract 
in  writing  has  been  made  and  signed,  but  the  name  of  the  party 
contracted  with  omitted,  the  omission  may  be  supplied  by  ex- 
trinsic evidence.  Of  this  we  have  no  doubt  where  the  name  was 
omitted  by  mistake  or  a  wrong  name  inserted.  And  the  authori- 
ties go  no  further.  This  paper  was  never  intended  to  contain 
the  name  of  any  one  but  the  signer.  It  was  a  personal  acknowl- 
edgment between  him  and  the  person  to  whom  it  was  delivered. 
That  person  alone  can  maintain  an  action  upon  it. 

It  is  not  expedient  to  widen  the  field  of  negotiable  paper. 
Certainly  none  can  be  considered  as  such  but  that  which  has 
acquired  the  quality  by  statute,  by  usage,  or  by  the  terms  of  the 
contract;  and  this  paper,  in  the  form  in  which  it  is  now  sued, 
has  not  the  sanction  of  either  of  these  sources  of  authority. 

A  contract  expressed  in  this  form,  "I.  0.  U.,"  was  held  in 
England  not  to  be  a  promissory  note,  until  an  evasion  of  the 
stamp  duties  caused  a  different  determination. 

Much  learning  has  been  shown  in  the  argument,  by  the  coun- 
sel on  both  sides,  but  the  case  does  not  seem  to  require  it ;  since, 
according  to  known  rules  and  the  common  understanding  of 
mercantile  contracts,  this  imports  no  promise  to  the  holder 
without  evidence  to  show  that  it  was  actually  given  to  him,  or 
at  least  some  subsisting  connection  shown,  from  which  that  fact 
might  be  fairly  inferred. 

The  motion  to  set  aside  the  non-suit  is  overruled. 


HASBROOK   v.    PALMER.  13 

Must  be  Payable  in  Money  Only* 

HASBROOK  v.  PALMER. 

2  McLean,  10.     1839. 

Opinion  of  the  Court.  This  action  is  brought  by  the 
plaintiffs  as  assignees  on  a  promissory  note,  payable  at  New 
York,  in  New  York  funds  or  their  equivalent.  The  defendants 
demur  specially,  and  for  cause  of  demurrer  state  that  it  is  not 
averred  in  said  declaration  of  what  value  the  said  New  York 
funds  or  their  equivalent  in  the  declaration  were  at  the  time 
and  place  of  payment,  and  that  said  note  is  not  negotiable. 

The  Michigan  statute  in  regard  to  the  negotiability  of  promis- 
sory notes  is  similar  to  the  statute  of  Anne,  which  has  been 
generally  adopted  in  this  country.  And  the  principal  question 
under  this  demurrer  is,  whether  the  note  on  which  this  action  is 
brought,  being  payable  in  New  York  funds  or  their  equivalent, 
is  negotiable. 

The  plaintiffs  rely  on  the  decision  in  the  case  of  Keith  v. 
Jones,  9  John.  Rep.  120,  where  it  was  held  that  a  note  pay- 
able to  A.,  or  bearer,  in  "New  York  State  bills  or  specie,"  was 
negotiable  within  the  statute,  upon  the  ground  that  the  bills 
mentioned  meant  bank  paper,  which,  in  conformity  with  general 
usage  and  understanding,  are  regarded  as  cash;  and,  there- 
fore, that  the  meaning  was  the  same  as  if  payable  in  lawful 
current  money  of  the  State.  And  also  on  the  case  of  Judah  v. 
Harris,  19  John.  Rep.  144,  where  it  was  decided  that  a  promis- 
sory note,  payable  at  a  particular  place,  in  the  bank-notes  cur- 
rent in  the  city  of  New  York,  was  negotiable  within  the  statute. 

And  it  is  insisted  that  the  promise  to  pay  in  New  York  funds, 
or  their  equivalent,  is  equivalent  to  an  undertaking  to  pay  in 
lawful  current  money  of  the  State  of  New  York.  That  it  is 
generally  understood  New  York  funds  means  specie,  or  a  cur- 
rency equal  to  specie,  and  that  the  drawer  of  the  note  promises, 
substantially,  to  pay  in  current  New  York  money. 

In  support  of  the  demurrer  it  is  contended  that  to  be  nego- 
tiable a  note  must  be  for  the  payment  of  money  only,  and  this 

*  See  Sec.   760-762,  Vol.  6,  Cyclopedia  of  Law. 


14  ESSENTIALS    OF    BILLS    AND    NOTES. 

is  laid  down  in  Chitty  on  Bills  (cd.  1839),  152.  He  says  it  is 
the  first  and  principal  requisite,  and  is  established  by  foreign 
as  well  as  English  law,  that  a  bill  or  note  must  be  for  the  pay- 
ment of  money  only.  That  it  cannot  be  for  the  delivery  or  pay- 
ment of  merchandise,  or  other  things  in  their  nature  susceptible 
of  deterioration  and  loss  and  variation  in  value;  nor  can  it  be 
for  payment  in  good  East  India  bonds  or  for  the  payment  of 
money  by  a  bill  or  note:  Clarke  v.  Percival,  2  Bar.  &  Adol. 
660 ;  Bui.  N.  P.  272. 

A  promissory  note  not  payable  in  cash  or  specific  articles  is 
not  negotiable:  Matthews  v.  llaughton,  2  Pairf.  377;  Johnson 
v.  Laird,  3  Blackf.  Rep.  153. 

A  note  payable  to  A.  B.,  or  order,  in  good  merchantable 
whiskey,  at  trade  price,  cannot  be  sued  by  an  assignee  or  bearer 
in  his  own  name:  Rhodes  v.  Lindley,  Ohio  Rep.  condensed, 
465. 

A  note  for  a  certain  sum,  payable  to  A.  or  order,  ' '  in  foreign 
bills"  (meaning  thereby  bills  of  country  banks),  has  been  held 
not  to  be  a  good  promissory  note  within  the  statute,  and  conse- 
quently not  negotiable:  Jones  v.  Sales,  4  Mass.  Rep.  245.  In 
the  case  of  Lieber  and  Colsin  v.  Goodrich,  5  Cowen  Rep.  186, 
the  Court  held  a  note  payable  in  Pennsylvania  or  New  York 
paper  currency  is  not  a  promissory  note  for  the  payment  of 
money  within  the  statute.  And  in  the  case  of  McCormick  v. 
Trotter,  10  Serg.  &  Raw.  Rep.  94,  the  Court  decided  that  a 
promissory  note  payable  to  A.  B.,  or  order,  for  five  hundred 
dollars,  in  notes  of  the  chartered  banks  in  Pennsylvania,  was 
not  a  negotiable  note  on  which  the  indorsee  can  sue  in  his  own 
name. 

In  South  Carolina  it  has  been  decided  that  paper  medium  is 
not  money ;  and  that,  therefore,  a  note  payable  in  Daper  medium 
is  not  assignable  within  the  statute  of  Anne  and  their  Act; 
and  on  a  verdict  for  the  assignee  of  such  a  note  judgment  was 
arrested :  Large  v.  Kohne,  1  McCord,  115 ;  McElarin  v.  Nesbit, 
2  Nott  &  McCord  Rep.  519. 

The  cases  cited  in  the  9th  and  19th  of  John.  Rep.  seem  not 
to  be  sustained  by  the  current  of  decisions  in  this  country  and 
in  England;  and  it  is  difficult  to  distinguish  those  cases  from 
the  decisions  cited  so  as  to  maintain  their  consistency.     If  this, 


RHODES    v.    LINDLEY.  15 

indeed,  were  practicable,  it  is  not  necessary  to  the  decision  of 
the  question  raised  by  this  demurrer. 

What  is  understood  in  this  State  by  New  York  funds  or  their 
equivalent,  may  be  a  matter  of  doubt ;  nor  does  it  seem  to  be 
of  a  nature  which  can  be  resolved  by  evidence,  so  far  as  regards 
the  question  under  consideration. 

The  term  New  York  funds,  it  is  presumed,  may  embrace 
stocks,  bank  notes,  specie,  and  every  description  of  currency 
which  is  used  in  commercial  transactions.  But  whether  is  meant 
the  funds  of  the  State  generally  or  of  the  City  of  New  York 
is  not  clear.  The  presumption  is  in  favor  of  the  latter,  but 
this  is  by  no  means  certain.  In  this  respect,  as  well  as  what 
constitutes  New  York  funds,  the  face  of  the  note  is  indefinite. 
It  is,  indeed,  susceptible  of  different  interpretations,  and  for 
this  reason  it  cannot  be  considered  a  negotiable  instrument 
within  the  statute.  It  is  not  a  note,  in  the  language  of  the 
decisions,  payable  in  money.  It  is  payable  in  New  York  funds 
or  their  equivalent. 

Now  what  is  equivalent  to  New  York  funds?  The  answer  is 
their  value,  their  value  in  specie  or  in  current  paper  which 
passes  at  a  discount.  Might  not  the  drawer  pay  this  note  in 
this  description  of  paper,  making  up  the  discount?  Would  not 
this,  in  the  language  of  the  contract,  be  equivalent  to  New  York 
funds  ?    It  would  be  equivalent  if  of  equal  value. 

The  demurrer  must  be  sustained. 


RHODES  v.  LINDLEY. 

3  Ohio,  51.    1827. 

This  was  an  action  of  assumpsit,  upon  a  note  of  hand  given 
by  the  defendant,  to  Hezekiah  Rhodes  or  bearer,  promising  to 
pay  fifty  dollars,  at  a  day  subsequent,  "in  good  merchantable 
whisky,  at  trade  price."  The  declaration  set  forth  in  terms,  an 
assignment  and  delivery  of  the  note  to  the  plaintiff,  and  claimed 
to  recover  as  bearer.  The  defendant  demurred,  and  assigned 
as  a  cause  of  demurrer,  that  the  note  was  not  negotiable. 


16  ESSENTIALS    OF    BILLS    AND    NOTES. 

The  court  of  common  pleas  in  Trumbull  county  gave  judg- 
ment for  the  plaintiff,  and  the  defendant  obtained  this  writ  of 
error,  which  was  adjourned  here  for  final  decision. 

At  the  common  law,  this  paper  was  not  assignable ;  neither  is 
it  assignable  under  our  statute.  The  plaintiff  admits  this;  but 
claims  to  recover,  on  the  ground,  that  being  made  payable  to 
bearer,  any  person,  who  is  the  actual  bona  fide  owner,  may  main- 
tain the  action  as  bearer.  Were  it  a  note  for  money,  this  posi- 
tion would  be  a  correct  one.  But  that  doctrine  has  never  been 
applied  to  executory  contracts  for  the  delivery  of  property,  or 
for  the  performance  of  any  particular  act. 

The  case  of  Geddings  v.  Byington  (2  Ohio,  228),  decided  upon 
the  circuit,  at  Ashtabula,  is  supposed  to  have  settled  this  doc- 
trine differently.  This  inference  is  deducted,  not  from  the 
point  decided,  but  from  some  remarks  of  the  judge  in  giving 
the  opinion.  These  were  only  intended  to  apply  to  a  note  for 
the  payment  of  money,  made  payable  to  a  payee  or  bearer.  It 
was  only  to  that  point  that  the  attention  of  the  court  was  directed 
in  argument.  The  negotiable  character  of  the  note  was  not 
made  a  subject  of  inquiry  by  either  party.  The  plaintiff  in 
error  claimed  a  reversal,  on  the  ground  that  the  right  of  the 
original  payee  did  not  appear,  by  the  declaration,  to  have  passed 
to  the  holder,  by  assignment,  delivery,  or  otherwise,  and  that 
ground  being  considered  sufficient  for  the  purpose,  the  judg- 
ment was  reversed  without  further  examination.  In  this  case, 
the  direct  question  is  presented,  whether  such  a  contract  as 
this  can  be  so  transferred  as  to  authorize  a  third  person  to 
maintain  a  suit  in  his  own  name.  Our  unanimous  opinion  is 
that  no  such  right  can  be  transferred.  The  judgment  must  be 
reversed,  and  judgment  be  given  for  defendant. 


SMITH    v.    NIGHTINGALE.  17 

Must  Be  for  the  Payment  of  a  Sum  Certain* 

SMITH  v.  NIGHTINGALE. 

2  Starkie,  375;  3  Eng.  C.  Law  Reports,  452.     1818. 

This  was  an  action  by  the  plaintiffs  in  right  of  the  wife,  as 
administratrix  of  James  Eastling.  The  declaration  contained  a 
count  upon  a  promissory  note  alleged  to  have  been  made  by  the 
defendant,  on  the  12th  of  October,  1807,  for  the  payment  of  £65 
to  James  Eastling,  payable  three  months  after  the  date:  the 
declaration  contained  also  the  money  counts,  and  a  count  upon 
an  account  stated. 

It  appeared  that  Eastling  had  been  employed  by  the  defend- 
ant as  a  servant  in  husbandry,  and  that  the  defendant  having 
in  his  hands  monies  belonging  to  James  Eastling,  gave  him  the 
following  promise  in  writing,  upon  which  the  first  count  in  the 
declaration  was  founded : 

"October  12,  1807. 
"I  promise  to  pay  to  James  Eastling,  my  head  carter,  the 
sum  of  £65,  with  lawful  interest  for  the  same,  three  months  after 
date,  and  also  all  other  sums  which  may  be  due  to  him." 

On  the  part  of  the  defendant  it  was  objected,  that  this  in- 
strument could  not  be  considered  as  a  promissory  note,  since  it 
was  not  made  for  the  payment  of  any  certain  sum,  and  that 
it  could  not  be  given  in  evidence  under  the  count  upon  an 
account  stated,  since  it  was  an  agreement,  and  for  a  larger 
sum  than  £20,  and  ought  to  be  stamped.  The  plaintiff  con- 
tended that  it  was  certain  to  the  extent  of  £65,  and  therefore 
Hi; it  to  that  extent  the  plaintiff  was  entitled  to  consider  it  as 
a  promissory  note ;  but  that,  at  all  events,  it  was  evidence  of  an 
account  stated,  and  that  no  stamp  was  essential  to  a  mere  ac- 
knowledgment of  a  debt. 

Lord  Ellenborough  was  of  opinion,  that  the  instrument  was 
too  indefinite  to  be  considered  as  a  promissory  note:  is  con- 
tained a  promise  to  pay  interest  for  a  sum  not  specified,  and 
not  otherwise  ascertained  than  by  reference  to  defendant 's  books ; 

*  See  Sec.  763-764,  Vol.  6,  Cyclopedia  of  Law. 


18  ESSENTIALS    OF    BILLS    AND    NOTES. 

and  th.it  since  the  whole  constituted  one  entire  promise,  it  could 
not  be  divided  into  parts.  He  also  held,  that  since  the  instru- 
ment contained  an  agreement  to  pay  the  money,  it  could  not  be 
received  in  evidence  as  an  acknowledgment  without  a  stamp. 

The  plaintiff  was  non-suited. 


DODGE  v.  EMERSON. 

34  Me.  96.    1852. 

Assumpsit,  by  the  indorsee  against  the  makers  of  a  note  pay- 
able to  the  Protection  Insurance  Company  or  order,  for  "$271.25, 
with  such  additional  premium  as  may  arise  on  policy  No.  50, 
issued  at  the  Calais  agency." 

Appleton,  J.  No  principle  of  law  is  more  fully  established 
by  authority,  and  the  universal  concurrence  of  the  commercial 
world,  than  that  to  make  a  written  promise  a  valid  promissory 
note  it  must  be  for  a  fixed  and  certain,  and  not  for  a  variable, 
amount.  In  France  it  is  so  determined  by  the  Code  Napoleon. 
It  is  the  recognized  mercantile  law  of  continental  Europe.  In 
England  and  in  this  country  it  has  received  the  sanction  of 
repeated  and  well-considered  adjudications:  Story  on  Promis- 
sory Notes,  §  20.  "Without  this  essential  requisite,  a  written 
promise,  though  in  terms  payable  to  order,  is  to  be  regarded 
as  a  simple  contract  and  not  negotiable. 

The  defendants  in  this  case  have  promised  to  pay  two  several 
sums;  one  certain  and  definite,  the  other  uncertain  and  con- 
tingent. The  defendants'  liability  being  for  both  these  sums, 
is  obviously  for  an  unascertained  and  indefinite  amount. 

It  is  insisted  in  argument  that  the  plaintiff  may  abandon 
all  claim  for  the  additional  premium,  which  is  uncertain,  and 
proceed  only  for  the  certain  sum  expressed  in  the  contract.  Un- 
doubtedly he  may  take  judgment  for  any  sum  less  than  the 
amount  due,  and  in  that  mode  abandon  a  portion  of  his  legal 
claims,  but  that  still  leaves  the  contract  in  its  original  state, 
and  can  in  no  way  affect  its  legal  construction.  He  could  not 
erase  the  clause  relating  to  the  additional  premium,   without 


DODGE    v.    EMERSON.  19 

thereby  making  such  an  alteration   in  the  instrument  declared 
on  as  would  discharge  the  defendants. 

In  Smith  v.  Nightingale,  2  Stark,  R.  375,  the  promise  was 
to  pay  the  payee  sixty-five  pounds  and  all  other  sums  that  may 
be  due  him,  and  it  was  claimed  for  the  plaintiff,  to  whom  the 
interest  in  the  contract  had  passed  by  indorsement,  that  he 
might  disregard  the  latter  clause  and  recover  on  the  certain  sum 
set  forth  in  his  contract  as  indorsee,  but  the  Court  decided 
otherwise:    Davis  v.  Wilkinson,  10  Adol.  &  El.  98. 

The  inquiry  is  made  by  the  counsel  for  the  plaintiff,  whether 
the  clause  providing  for  the  payment  of  an  additional  sum, 
introduced  after  the  promise  to  pay  the  sum  fixed  and  certain, 
controls  that  sum  so  as  to  make  it  in  any  event  uncertain.  The 
amount  due  to  the  plaintiff  is  uncertain.  Whether  the  con- 
tract is  to  be  regarded  as  a  promise  to  pay  one  sum,  which  shall 
be  the  aggregate  composed  of  a  certain  and  of  an  uncertain 
sum,  the  amount  of  which  is  to  be  ascertained  at  some  subse- 
quent time,  or  a  promise  to  pay  two  sums,  one  fixed  and  the 
other  uncertain,  is  perfectly  immaterial.  In  either  case  there 
is  no  precise  and  ascertained  amount  due  by  the  contract,  and 
it  cannot  be  regarded  as  a  promissory  note.  If  it  was  not  in 
its  origin,  it  cannot  be  made  one  by  any  abandonment,  which 
the  plaintiff  may  deem  it  advisable  to  make  of  any  portion  of  the 
sum  due  him.  The  contract  declared  on  not  being  in  its  char- 
acter negotiable,  the  action  cannot  be  maintained  by  the  present 
plaintiff. 

Plaintiff  nonsuit* 


*  Provision  for  the  Payment  of  Attorney's  Fees. — The  fact  that  it 
contains  a  provision  for  the  payment  of  interest  without  naming  the 
amount  of  interest  will  not  render  it  uncertain  in  amount,  for  the  legal 
rate  will  he  collected.  Upon  the  question  whether  a  condition  to  pay 
"collection  or  attorney's  fee"  in  addition  to  the  amount  named  affects 
the  negotiability  of  these  contracts  or  not,  there  is  much  conflict  of 
authority.  Some  of  the  states  have  sustained  the  negotiability  of 
these  instruments;  others  have  held  that  the  condition  destroys  the 
negotiability  of  the  instrument;  while  still  others  have  held  that  the 
stipulation  renders  the  contract  void.  A  careful  examination  of  all 
the  authorities,  especially  of  the  more  recent  decisions,  will  show 
that  the  weight  of  authority  is  found  in  favor  of  the  doctrine  that  the 
negotiability  of  a  commercial  contract  is  in  no  way  affected  by  a 
stipulation  for  the  payment  of  reasonable  collection  or  attorney's  fee. 


20  ESSENTIALS    OF    BILLS    AND    NOTES. 

The  Sum  of  Money  Must  Be  Payable  Without  Conditions* 

BANK  v.  ARMSTRONG. 
25  Minn.  530.     1879. 

The  plaintiff,  a  corporation,  sued  the  defendant  in  the  late 
Court  of  Common  Pleas  of  Ramsey  County,  upon  the  follow- 
ing instrument: 

"$43.33.  St.  Paul,  July  31,  1873. 

"On  or  before  December  1,  1875,  for  value  received  in  one 
Williams  combined  reaper,  I  promise  to  pay  to  the  order  of 
the  Williams  Mower  and  Reaper  Co.,  with  current  exchange  on 
New  York  city,  at  the  First   National  Bank  in  St.  Paul,  forty- 

In  the  following  states  commercial  contracts  are  sustained  where 
such  stipulation  is  added:  Oregon,  Arkansas,  Mississippi,  Minnesota, 
Iowa,  Louisiana,  Kansas,  Illinois,  Dakota,  Nebraska,  as  well  as  by  the 
courts  of  the  United  States.  Benn  v.  Kutzschan,  24  Or.,  28;  32  Pac. 
R.,  7G3;  Overton  v.  Mathews,  35  Ark.,  147;  Meacham  v.  Pinson,  60 
Miss.,  226;  Hamilton  Gin  Co.  v.  Sinker,  74  Tex.,  52;  Dietrich  v.  Bayhi, 
23  La.  An.,  767;  Harris  Mnfg.  Co.  v.  Anfinson,  31  Minn.,  182;  Schles- 
inger  v.  Arline,  31  Federal  Rep.,  648;  Farmers'  Nat.  Bk.  v.  Sutton  & 
Co.,  Fed.  R.,  191;  Sperry  v.  Horr,  32  Iowa,  184;  Seaton  v.  Scoville,  18 
Kan.,  433;  Hurd  v.  Dubuque  Bk.,  8  Neb.,  10.  The  attention  of  the 
student  is  called  to  the  case  of  Bowie  v.  Hall,  1  L.  R.  A.,  546;  also 
69  Md.,   433. 

In  the  following  states  the  contracts  containing  such  stipula- 
tions have  been  sustained  but  are  not  negotiable.  They  may  be 
enforced  as  common  law  contracts.  Pennsylvania,  Missouri,  North 
Carolina,  Minnesota,  Wisconsin,  California  and  Maryland.  They  are 
denied  negotiability  upon  the  ground  that  the  amount  to  be  paid  is 
uncertain.  Johnson  v.  Speer,  92  Pa.  St.,  227;  First  Nat.  Bk.  v.  Gay, 
63  Mo.,  33;  First  Nat.  Bk.  v.  Bynum,  84  N.  Carolina,  24;  Jones  v. 
Raditz,  27  Minn.,  240;  Savings  Bank  v.  Strother,  28  S.  C,  504;  Adams 
v.  Seaman,  82  Cal.,  637;  First  Nat.  Bk.  v.  Larsen,  60  Wis.,  211; 
Maryland  &  Co.  v.  Newman,  60  Md.,  584;  45  Am.  R.  750. 

While  in  the  following  cases  the  courts  have  held  that  such 
stipulations  are  absolutely  void:  Bullock  v.  Taylor,  39  Mich.,  138; 
Myer  v.  Hart,  40  Mich.,  517;  Wright  v.  Travers,  73  Mich.,  494;  Alt- 
man  v.  Rellershofer,  68  Mich.,  287;  Tinsley  v.  Hoskins,  111  N.  C,  340; 
Gaar  v.  Louisville  Banking  Co..  11  Bush  (Ky.),  182;  Kemp  v.  Claus, 
8  Neb.,  24;  State  v.  Taylor,  10  Ohio,  378;  Walker  v.  Woolen,  54  Ind., 
163;  Maynard  v.  Mier,  85  Ind.,  317. — Johnson  on  Bills  and  Notes,  91. 

*  See  Sees.  765-6,  Vol.  6,  Cyclopedia  of  Law. 


BANK    v.    ARMSTRONG.  21 

three  33-100  dollars,  with  interest  at  twelve  per  cent,  from  date 
until  paid,  but  if  paid  at  or  before  maturity,  seven  per  cent, 
per  annum. 

"This  note  to  become  due  upon  the  removal  of  the  maker, 
notwithstanding  the  above  period  of  payment  has  not  expired! 
The  sale  and  purchase  of  said  Williams  combined  reaper,  the 
property  for  which  this  note  is  given,  are  upon  the  express' con- 
dition that  the  title  and  ownership  of  said  property  shall  remain 
in  the  said  the  Williams  Mower  and  Reaper  Co.,  and  shall  not 
pass  to  any  one,  by  or  through  me,  until  this  note  and  interest 
are  paid  in  full;  and  the  delivery  thereof  at  this  time  is  sub- 
ject to  the  same  condition.  The  said  the  Williams  Mower  and 
Reaper  Co.  shall,  in  the  meantime,  have  the  right  to  take  pos- 
session of  said  property,  wherever  it  may  be  found,  at  any  time 
they  may  deem  themselves  insecure,  even  before  the  maturity 
of  this  note ;  and  if  not  paid  when  due,  I  will  pay  five  per  cent, 
extra  cost  for  collection. 

"Daniel  Armstrong." 

A  jury  was  waived,  and  the  action  was  tried  before  Brill,  J., 
who  found  that  in  January,  1875,  the  instrument  was,  for  a 
valuable  consideration,  sold  and  indorsed  and  delivered  by  the 
Williams  Mower  and  Reaper  Company  to  the  plaintiff ;  that  the 
consideration  for  the  instrument  was  a  combined  reaper  and 
mower  sold  and  delivered  by  the  company  to  the  defendant,  at 
the  time  it  was  given,  and  on  the  conditions  therein  men- 
tioned; that  at  the  time  of  the  sale,  and  to  induce  the  defend- 
ant to  purchase,  the  company  warranted  and  represented  to  the 
defendant  that  the  machine  was  a  good  and  perfect  machine 
and  would  do  good  work,  both  as  a  reaper  and  mower,  on  de- 
fendant's farm  in  Washington  County,  and  the  defendant  ac- 
cepted and  purchased  it,  relying  on  such  representation  and  war- 
ranty; that  the  machine  was  not  a  good  or  perfect  machine, 
and  could  not  be  used  as  a  reaper,  and  could  not  be  made  to 
do  good  work  as  a  reaper,  and  was  worthless  and  of  no  value; 
but  that  the  plaintiff  had  no  knowledge  of  such  warranty  or 
of  the  character  and  quality  of  the  machine  before  its  pur- 
chase of  the  instrument  in  suit. 

As  a  conclusion  of  law  the  Court  held  that  the  instrument 
was  not  a  negotiable  promissory  note,  and  ordered  judgment 
for  the  defendant,  which  was  entered  and  the  plaintiff  appealed. 


22  ESSENTIALS    OF    BILLS    AND    NOTES. 

Cornell,  J.     The  promise  upon  which  a  recovery  is  sought 

in  this  action,  as  upon  a  negotiable  promissory  note,  forms  but 
a  part  of  the  written  instrument  which  was  made  and  executed 
by  the  defendant  as  an  entirety.  In  determining  the  character 
and  Legal  effect  of  such  promise,  regard  must  be  had  to  the 
whole  instrument  and  all  its  provisions,  and  not  to  the  facts 
alone  that  the  promise  was  put  in  the  form  of  a  negotiable 
promissory  note,  payable  to  order,  and  was  designated  as  a  note 
in  the  instrument.  Thus  considered,  it  is  obvious  that  the  de- 
fendant's obligation  was  not  such  an  independent,  absolute, 
and  unconditional  one,  lor  the  payment  of  a  precise  and  definite 
sui n  of  money  at  all  events,  and  without  any  contingency,  as  is 
essential  to  the  validity  of  commercial  paper:  1  Parson's  Bills 
&  Notes,  30,  42 ;  Story  Prom.  Notes,  §  22.  It  appears  upon 
the  face  of  the  instrument  that  the  defendant's  obligation  to 
the  Williams  Mower  and  Reaper  Company,  the  assignor  of  the 
plaintiff,  was  upon  the  sole  condition  and  consideration  that 
the  reaper  therein  mentioned  as  belonging  to  the  company,  the 
possession  of  which  was  then  conditionally  delivered  to  him, 
should,  by  a  proper  transfer  of  title  from  the  company,  become 
his  absolute  property  whenever  and  as  soon  as  his  said  obliga- 
tion was  fulfilled  in  accordance  with  the  terms  of  the  contract. 
It  also  expressly  provided  that  the  title  and  ownership  of  the 
reaper  should  remain  in  the  company  until  full  payment  of  the 
so-called  note  and  interest,  and  that  the  delivery  of  the  prop- 
erty at  that  time  was  subject  to  this  condition,  and  to  the  right 
of  the  company  to  retake  possession  at  any  time  it  might  deem 
itself  insecure.  Defendant's  promise,  therefore,  was  not  an  ab- 
solute and  unconditional  one  to  be  kept  in  any  event;  for  it 
depended  upon  the  contingency  of  an  observance  by  the  com- 
pany of  the  sole  condition  on  which  it  rested,  that  an  absolute 
transfer  of  the  property  with  good  title  would  be  made  when- 
ever the  promise  was  performed.  The  promise  of  payment  and 
the  implied  obligation  to  transfer  the  title  was  mutual,  and  as 
each  was  the  sole  consideration  for  the  other,  and  both  were 
to  be  performed  at  the  same  time,  they  were  concurrent  con- 
ditions  of  the  same  agreement,  in  the  nature  of  mutual  con- 
ditions precedent,  so  that  inability  or  refusal  to  perform  the 
one  would  excuse  performance  as  to  the  other:    Benjamin  on 


MAULE    v.    CRAWFORD.  23 

Sales,  451  and  480.  If,  prior  to  any  default  on  the  part  of  the 
defendant,  the  company  had  retaken  possession  of  the  prop- 
erty and  disposed  of  it,  so  that  upon  the  maturity  of  the  de- 
fendant's obligation  an  observance  of  the  condition  on  its  part 
had  become  impossible,  there  can  be  no  doubt  that,  under  such 
circumstances,  no  action  could  have  been  maintained  against 
him  upon  his  promise.  An  obligation  of  this  character  is  al- 
together too  uncertain  to  serve  the  purpose  of  commercial  paper, 
as  the  representative  of  money  in  business  transactions.  It  car- 
ries into  the  hands  of  every  holder  notice  of  the  existence  of 
a  condition  that  may  result  in  defeating  any  recovery  upon  it, 
and,  therefore,  cannot  have  accorded  to  it  the  privileges  attach- 
ing to  that  kind  of  paper. 

Judgment  affirmed. 


To  Be  Negotiable,  Instrument  Must  Contain  "Words  of  Negotia- 
bility." 

MAULE  v.  CRAWFORD. 
14  Hun,  193.    1878. 

Appeal  from  a  judgment  in  favor  of  the  plaintiff  entered 
upon  a  verdict  directed  by  the  Court,  and  an  order  denying  a 
motion  for  a  new  trial  made  upon  the  minutes  of  the  justice 
and  the  exceptions. 

The  action  was  brought  upon  a  promissory  note  in  the  follow- 
ing words  and  figures : 

"April  1,  1875. 
"Eight  months  after  date  we  promise  to  pay  to  Mr.  George 
Harse  the  sum  of  two  hundred   and  seventy-five   dollars,   for 
value  received. 
"$275.00."  "John  Crawford, 

"Sarah  Crawford." 

The  defendant's  answer  was  as  follows: 

"1.  Alleges  for  a  first  separate  and  distinct  defense  that  the 
note  mentioned  in  the  complaint,  and  upon  which  this  action 
is  brought,  was  given  for  a  loan  of  two  hundred  and  fifty 


24  ESSENTIALS    OF    BILLS    AND    NOTES. 

dollars  upon  which  the  said  George  Harse  wrongfully,  unlaw- 
fully, and  corruptly  reserved  the  sum  of  twenty-five  dollars  as 
usurious  interest  or  bonus,  for  the  loan  or  use  of  the  said  sum 
of  two  hundred  and  fifty  dollars  for  the  period  of  eight  mouths, 
specified  in  the  said  note. 

"2.  And  for  a  second  separate  and  distinct  defense,  the  de- 
fendant alleges  that  before  this  action  there  was  paid  ou  account 
of  said  note  the  sum  of  one  hundred  and  seven  dollars." 

1  pon  the  trial  the  first  defense  was  stricken  out,  on  the  ground 
that  it  was  not  alleged  that  the  alleged  usurious  interest  or  bonus 
was  reserved  in  pursuance  of  an  agreement  to  that  effect. 

Gilbert,  J.  The  county  -Indue  erred  in  ruling  that  a  pay- 
ment upon  the  note  in  a  suit  before  the  transfer  thereof  to  the 
plaintiff,  did  not  bind  the  latter  without  notice.  The  reverse  is 
the  established  rule  of  law.  The  statute  (1  R.  S.  768,  §1), 
defines  what  shall  give  to  a  promissory  note  the  quality  of 
negotiability.  It  must  be  payable  to  another  person  or  Ids 
order,  or  to  the  order  of  another  person,  or  to  bearer.  The 
note  in  suit  was  payable  to  George  Harse  only,  and  was,  there- 
fore, not  negotiable.  The  plaintiff  took  it  subject  to  all  equities 
existing  between  the  original  parties,  for  an  assignee  of  a  chose 
in  action  stands  in  no  better  position  than  his  assignor,  in  respect 
to  anything  which  occurred  before  the  assignment. 

I  think  also  that  the  Court  erred  in  striking  out  the  defense 
of  usury.  The  plaintiff  should  have  demurred:  Lathrop  v. 
Godfrey,  3  Hun,  742;  National  Bank  of  the  Metropolis  v.  Or- 
cutt,  48  Barb.  256.  That  part  of  the  answer  was  neither  sham 
nor  frivolous.  On  the  contrary  I  think  it  is  by  no  means  clear 
that  it  should  have  been  held  bad  on  demurrer. 

It  is  averred  that  a  note  for  $275  was  given  for  a  loan  of 
$250,  and  that  the  payee  thereof,  wrongfully,  unlawfully,  and 
corruptly  reserved  the  sum  of  $25  as  usurious  interest  for  the 
loan  of  said  sum  of  $250  for  the  period  of  eight  months.  Proof 
of  a  loan  of  $250  and  a  demand  by  the  lender  of  a  note  for  $25 
more  than  the  sum  loaned,  as  compensation  for,  or  interest 
upon  the  same,  and  a  compliance  with  such  demand  by  the 
borrower,  certainly  would  have  warranted  the  jury  in  finding 
that  a  usurious  contract  to  that  effect  was  made.  It  is  not 
necessary  that   a  formal  agreement,   either  verbal  or  written, 


BENJAMIN    v.    TILL..1AN.  25 

should  be  set  forth  in  so  many  words.  It  is  enough  to  allege 
the  facts  as  they  occurred,  and  if  such  facts  justify  the  infer- 
ence of  a  usurious  contract,  the  answer  ought  to  be  held  suffi- 
cient: Merch.  Ex.  Nat.  Bank  v.  Com.  Warehousing  Co.,  49 
N.  Y.  638.  No  stricter  rule  of  pleading  should  be  adminis- 
tered in  a  case  of  usury  than  in  any  other  case.  In  the  case  of 
Nat.  Bank  v.  Lewis,  10  Hun,  468,  it  was  held  that  the  answer 
did  not  allege  an  agreement  between  the  parties.  We  might 
doubt  the  correctness  of  that  construction  of  the  answer  in  that 
case,  but  there  can  be  no  question  that  in  pleading  usury,  a 
usurious  agreement  must  be  in  substance  averred.  No  demurrer 
to  the  answer  in  this  case  having  been  interposed,  we  think  it 
should  have  been  held  sufficient  to  admit  the  evidence  of  the 
usury  which  was  offered. 

The  order  denying  a  new  trial,  and  the  judgment  must  be 
reversed  with  costs. 

Judgment  and  order  denying  new  trial  reversed,  and  new 
trial  granted  with  costs  to  abide  the  event. 


Consideration  Need  Not  Be  Stated  in  Bill  as  Note  Unless  Be" 
quired  by  Statute* 

BENJAMIN  v.  TILLMAN. 

2  McClean,  213.     1840. 

Opinion  op  the  Court.  This  is  an  action  of  assumpsit,  the 
general  counts  for  money  had  and  received,  lent,  etc.,  only,  being 
contained  in  the  declaration. 

The  plaintiff  offered  in  evidence  a  bill  drawn  by  him  pay- 
able to  Lansing,  and  accepted  by  defendant,  but  which  did  not 
contain  the  words  value  received,  and  on  that  ground,  it  was 
objected  to. 

The  question  is,  whether  this  bill  is  evidence  under  the  money 
counts. 

A  bill,  as  well  as  a  note,  is  prima  facie  evidence  for  money 

*  See  Sec.  769,  Vol.  6,  Cyclopedia  of  Law. 


26  ESSENTIALS    OF    BILLS    AND    NOTES. 

had  and  received  by  the  drawer  or  maker  to  the  use  of  the 
holder;  and,  on  acceptance,  is  evidence  of  money  had  and 
received  b\  the  acceptor  to  the  use  of  the  drawer:  1  Salk.  283; 
Granl  v.  Vaughan,  3  Burr.  L516;  Bayl.  (5th  ed.)  357;  7  Wheat. 
35;  3  Gill  &  Johns.  Rep.  369;  Pattock  v.  Harris,  3  Term  Rep. 
17h  Vese  v.  Lewis,  ::  Term  Rep.  182. 

It  was  decided,  in  Hardress,  485,  that  debt  would  not  lie  by 
the  payee  of  a  bill  of  exchange  against  the  acceptor.  And  in 
the  ease  of  Gibson  v.  Mi  net,  1  II.  Bla.  602,  Eyre,  C.  J.,  said, 
"that  the  presumption  of  evidence  which  a  bill  of  exchange 
affords  has  no  application  to  the  assumpsit  for  money  paid  by 
the  payee  or  holder  of  it,  to  the  use  of  the  acceptor;  and  that 
it  must  be  a  very  special  ease  which  will  support  such  an  as- 
sumpsit:" 3  East.  177. 

In  the  ease  of  Barlow  v.  Bishop,  1  East.  434,  435,  it  was  held, 
that  the  plaintiff  can,  in  no  case,  recover  under  the  general 
count,  unless  money  has  actually  been  received  by  the  party 
sued,  and  for  the  use  of  the  plaintiff;  and,  also,  in  the  case  of 
Wayman  v.  Bend,  1  Camp.  175. 

In  the  case  of  Raborg  v.  Peyton,  2  Wheat.  Rep.  3S5,  the 
Court  say — "prima  facie,  every  acceptance  affords  a  presump- 
tion of  funds  of  the  drawer  in  the  hands  of  the  acceptor;  and 
is,  of  itself,  an  express  appropriation  of  those  funds  for  the  use 
of  the  holder."  And,  again,  "we  are,  therefore,  of  opinion 
that  debt  lies  upon  a  bill  of  exchange  by  an  indorsee  of  the 
bill  against  the  acceptor,  when  it  is  expressed  to  be  for  value 
received." 

In  the  case  of  Smith  v.  Smith,  2  John.  Rep.  235,  and  Saxton 
et  al.  v.  Johnson,  10  John.  Rep.  418,  it  was  settled  that  a  note 
not  negotiable  was  admissible  in  evidence  under  the  count  for 
money  had  and  received. 

As  between  each  party  to  a  bill  of  exchange,  or  negotiable 
promissory  note,  and  every  other  party,  there  is  a  sufficient 
privily  in  law,  and  as  such  negotiable  contract  is  presumed  to 
be  a  cash  transaction,  and,  as  a  money  consideration,  is  pre- 
sumed to  pass  at  the  making,  and  at  each  indorsement  of  the 
instrument,  each  party  liable  to  pay  is  held  responsible,  as  for 
so  much  money  had  and  received  to  the  use  of  the  party  who 
is,  for  the  time,  the  holder,  and  entitled  to  recover.     Shaw, 


BENJAMIN    v.    TILLMAN.  27 

Chief  Justice:  Ellsworth  v.  Brewer,  11  Pick.  316;  State  Bank 
v.  Hurd,  12  Mass.  Rep.  172;  Butler  v.  Wright,  20  John.  Rep. 
367. 

It  will  be  seen  from  the  above  citations  that  there  is  great 
contrariety  in  the  authorities,  as  to  what  shall  be  evidence  under 
the  money  counts.  The  more  modern  English  authorities,  which, 
however,  are  not  altogether  consistent,  limit  the  evidence  to  a 
money  transaction  between  the  parties  on  the  record,  whilst  the 
American  authorities  give  a  more  liberal  view,  and  many  of 
them  require  nothing  more  than  an  indebtment. 

In  the  case  under  consideration  the  plaintiff  being  the  drawer 
of  the  bill  which  the  defendant  accepted  in  favor  of  Lansing, 
and  the  plaintiff,  being  now  the  holder  of  the  bill,  is  prima  facie 
entitled  to  recover.  And  we  think  that  the  acceptance  is  an 
admission  by  the  acceptor,  that  he  has  received  from  the  drawer 
the  amount  of  the  bill. 

It  is,  however,  contended  that  as  the  words  "value  received" 
are  omitted  in  the  bill,  that  it  does  not  afford  prima  facie  evi- 
dence of  indebtment.  But  the  law  is  well  settled  that,  in  a 
negotiable  instrument  these  words  are  not  necessary:  Grant  v. 
Da  Carta,  3  Maul.  &  Sel.  352.  A  declaration  on  a  bill  of  ex- 
change was  demurred  to  because  it  was  not  stated  to  have  been 
given  for  value  received,  but  the  Court  said  it  was  a  settled 
point  that  it  was  not  necessary,  and  gave  judgment  for  the 
plaintiff:  Poplewell  v.  Wilson,  1  Stra*  264;  Claxton  v.  Swift,  2 
Shaw,  496,  497 ;  Mackleod  v.  Snee,  Lord  Raym.  1481 ;  Chitt.  on 
Bills  (ed.  1839),  182. 

AVhere  a  note  or  bill  is  not  declared  on,  but  is  used  as  evi- 
dence under  the  money  counts,  it  is  said  to  be  less  conclusive 
than  where  the  action  is  founded  upon  it.  That  it  is  used  as 
a  paper  from  which  the  jury  may  infer  so  much  money  was 
lent,  paid,  or  had  and  received,  or  that  an  account  was  stated: 
Storey  v.  Atkins,  2  Stra.  725. 

The  jury  found  for  the  plaintiff.    Judgment. 


28  ESSENTIALS    OF    BILLS    AND    NOTES. 

POPLEWELL  v.  WILSON. 
1  Strange,  263.    1719. 

Error  of  a  judgment  in  C.  B.,  in  case  upon  a  promissory  note 
entered  into  by  A.  to  pay  so  much  to  B.  for  a  debt  due  from 
C.  to  the  said  B.  And  it  was  objected,  thai  this  note  not  being 
for  value  received,  it  was  not  within  the  statute,  and  prima 
facie  the  debt  of  another  and  is  no  consideration  to  raise  a 
promise. 

Per  Curiam.  But  the  court  held  it  to  be  within  the  statute, 
being  an  absolute  promise,  and  every  way  as  negotiable  as  if 
it  had  been  generally  for  value  received.  And  the  judgment 
was  affirmed. 


There  Must  Be  a  Delivery  of  the  Instrument  to  Make  it  Binding 
on  the  Maker  or  Drawer* 

BURSON  v.  HUNTINGTON. 

21  Mich.,  415;  4  American  Dec,  497.    1870. 

This  cause  was  brought  into  the  Circuit  Court  for  the  County 
of  Kalamazoo  by  appeal  from  the  judgment  of  a  Justice  of  the 
Peace,  in  an  action  in  which  Walter  S.  Huntington  was  plaintiff, 
and  John  W.  Burson  defendant. 

The  justice's  transcript  states  that  the  plaintiff  declared  verb- 
ally on  the  common  count  in  assumpsit  and  upon  a  promissory 
note,  which  was  filed  at  the  time  of  declaring,  and  of  which  the 
following  is  a  copy,  viz. : 

"Schoolcraft,  Mich.,  Apr.  12th,  1866. 
"Ninety  days  from  date,  for  value  received,  I  promise  to  pay 
A.  N.  Goldwood,  or  order,  one  hundred  and  twelve  dollars,  and 
fifty  cents,  with  interest. 

"John  W.  Burson." 

Indorsed  on  the  back, 
"A.  N.  Goldwood." 


*  See  Sec.  772,  Vol.  G,  Cyclopedia  of  Law. 


BURSON    v.    HUNTINGTON.  29 

The  defendant  filed  an  affidavit  denying  the  delivery  of  the 
note,  and  also  a  plea  and  notice  in  writing. 

The  defendant,  in  the  affidavit  filed,  with  his  plea  and  notice, 
deposed  "that  the  written  instrument,  declared  on  in  this  cause 
by  said  plaintiff,  was  never  delivered  by  this  defendant,  to  the 
said  A.  N.  Goldwood,  mentioned  in  said  written  instrument, 
nor  to  any  other  person  for  the  said  A.  N.  Goldwood,  or  any 
other  person,  and  that  this  defendant  never  authorized  any 
other  person  to  deliver  the  written  instrument  for  him  (this 
defendant),  to  the  said  A.  N.  Goldwood,  or  to  any  other  person; 
and  defendant  further  says  that  this  deponent  never  placed  any 
United  States  internal  revenue  stamps  upon  said  written  in- 
strument, and  never  authorized  any  other  person  to  do  so  for 
him,  or  to  cancel  the  same ;  that  said  written  instrument  was 
taken  from  the  house  of  this  defendant,  in  this  defendant's 
absence  from  the  same,  by  the  said  A.  N.  Goldwood,  without 
the  knowledge  or  consent  of  the  deponent  at  the  time. ' ' 

On  the  trial  before  the  justice,  the  jury  found  a  verdict  for 
the  defendant,  and  the  plaintiff  appealed. 

On  the  part  of  the  defense  in  the  Circuit  Court,  it  was  shown 
that  Ellen  Burson  had  been  sworn  as  a  witness  before  the  jus- 
tice, and  that  she  had  since  died ;  ' '  That  Goldwood  came  to 
the  house  of  defendant  and  told  defendant  he  had  come  to  finish 
up  that  matter.  They  sat  down,  and  Goldwood  wrote  this  note. 
Defendant  signed  it.  Goldwood  said  he  wanted  security  or  a 
signer.  Defendant  said  he  would  go  out  and  see  his  uncle.  His 
uncle  was  at  the  barn  at  the  time.  Defendant  laid  the  note  on 
the  table,  and  told  plaintiff  not  to  touch  it  until  he  came  back. 
Defendant  went  out  of  the  house  to  the  barn,  and  before  he 
returned,  Goldwood  picked  up  the  note  and  started  out  doors 
with  it.  She  told  Goldwood  to  let  the  note  be  on  the  table  until 
defendant  came  back.  Goldwood  said  he  was  going  to  take  the 
note,  or  proposed  to  have  it,  or  something  to  that  effect,  and 
went  off  with  it.  He  started  towards  Kalamazoo.  She  said  there 
was  no  stamp  on  the  note  at  the  time  Goldwood  took  it  away." 

The  counsel  for  the  defendant  then  asked  the  court  to  charge 
the  jury: 

1st,  That  if  they  find  that  A.  N.  Goldwood,  the  payee  named 
in  the  note,  took  this  note  after  it  was  drawn  and  signed  by 


30  ESSENTIALS    OF    BILLS    AND    NOTES. 

defendant,  without  the  knowledge,  and  against  the  will  and 
consent  of  the  defendant,  and  before  the  defendant  had  deliv- 
ered the  note  to  any  person,  the  note  thus  obtained  would  be 
void  iii  the  hands  of  said  <  roldwood. 

LM.  Thai  such  note  would  be  void  in  the  hands  of  any  subse- 
quent holder,  deriving  possession  of  the  same  from  said  Gold- 
wood,  \\  hether  for  value  or  not. 

3d.  Il'  the  jury  shall  find  thai  the  plaintiff  had  notice  of  the 
means  and  manner  used  by  A.  N.  Goldwood,  as  above  stated, 
in  getting  possession  of  the  note  at  the  time  he  indorsed  and 
delivered  it  to  the  plaintiff,  the  plaintiff  could  not  be  considered 
an  innocent  holder  of  the  note. 

4fh.  Thai  whether  the  plaintiff  in  this  cause  had  such  notice, 
or  not,  is  a  question  of  fact  to  be  found  by  the  jury  from  all 
the  testimony  in  the  case.  That  the  fact  of  the  plaintiff  having 
such  notice  need  not  be  proved  by  positive  testimony,  but  may 
be  proved  by  circumstances. 

5th.  That  this  note  in  suit,  if  drawn  and  signed  by  the  de- 
fendant, and  if  not  afterwards  delivered  by  him  or  by  his 
authority  to  some  other  person,  has  no  legal  existence,  and  is 
therefore   void. 

And  thereupon  the  Court  charged  the  jury  as  follows: 

The  present  is  an  action  of  assumpsit,  brought  to  recover 
the  principal  and  interest  moneys  claimed  to  be  due  upon  a 
negotiable  promissory  note.  The  plaintiff  claims  to  be  the 
holder  of  said  note  by  purchase.  The  action  is  brought  in  the 
form  prescribed  by  statute.  The  declaration  consists  of  the 
common  counts,  with  a  copy  of  the  note  appended.  The  de- 
fendant having  failed  to  deny  the  execution  of  the  note  on 
oath  or  by  affidavit  duly  filed,  it  becomes  unnecessary  for  the 
plaintiff  to  prove  such  execution  on  the  trial  of  the  case.  By 
offering  the  note  in  evidence,  then  proving  it  to  have  been  in- 
dorsed and  delivered  to  him,  the  plaintiff  in  such  case  makes 
out  a  prima  facie  case  for  its  recovery. 

The  real  questions  raised  upon  this  trial  are  those  stated  in 
the  defense  set  up,  and  had  reference  almost  solely  to  the  doc- 
trine of  our  commercial  law  and  the  rights  of  the  parties  inter- 
ested in  negotiable  or  commercial  paper.  As  between  first  par- 
ties to  such  paper,  as  maker,  payee,  the  right  of  defense  is 


BURSON    v.    HUNTINGTON.  31 

generally  as  ample  in  range,  as  the  facts  which  would  invalidate 
the  contract  or  claim ;  as,  for  instance,  illegality,  fraud,  want  or 
failure  of  consideration  or  any  unwarrantable  means  for  obtain- 
ing it.  A  like  rule  prevails  in  an  action  between  the  maker 
and  a  subsequent  indorser,  or  holder,  coming  into  possession  or 
ownership  after  the  note  has  matured,  and  become  due  and  pay- 
able by  its  terms. 

The  same  rule  governs  also  as  between  the  maker  and  holder 
by  purchase  before  maturity  and  for  value,  but  with  notice  of 
existing  infirmities  in  the  paper,  or  its  surroundings,  which 
would  invalidate  the  same,  as,  for  instance,  that  the  note  had 
been  given  upon  the  sale  and  purchase  of  intoxicating  liquor  in 
this  state. 

But  when  the  action  is  between  the  maker  and  dona  fide 
holder  for  value  of  negotiable  paper,  purchased  before  its  ma- 
turity and  without  notice  that  the  same  is  different,  such 
holder  is  not  subject  to  equities  that  may  exist  between  first 
parties.  The  law  commercial  protects  such  holder  from  the 
defenses  which  might  be  set  up,  as  between  the  parties.  In 
general  terms  facts  going  to  impeach  or  invalidate  the  paper 
cannot  be  resorted  to  on  the  defense.  The  rule  itself  is  one 
of  commercial  necessity  in  order  to  impart  confidence  and 
steady  value  to  this  class  of  papers  in  commercial  and  business 
transactions. 

The  counsel  for  defendant  has  presented  to  the  court  a 
series  of  seven  requests  to  charge  the  jury,  and  to  which  the 
court  will  now  direct  your  attention.  As  to  the  first  request, 
the  court  declines  to  charge  as  requested,  but  modifies  the  request 
to  charge  (in  this  form  provisionally)  that  if  a  party  negli- 
gently allows  his  negotiable  note  to  get  into  circulation,  or  if 
after  it  has  passed  from  his  possession  he  either  acknowledged 
or  by  silence  acquiesced  in  a  claim  of  its  validity,  by  the  holder ; 
to  which  refusal  to  charge  as  requested,  and  also  to  said  modifica- 
tion of  the  request,  the  counsel  for  defendant  excepted. 

As  to  the  second  request,  the  court  declines  to  charge  as 
requested ;  to  which  refusal  to  charge  as  requested  in  said  second 
request,  the  counsel  for  defendant  excepted. 

As  to  the  third  request,  the  court  charges  you  as  requested, 
with  the  addition,  that  if  they  also  find  that  Goldwood  obtained 


32  ESSENTIALS    OF    BILLS    AND    NOTES. 

the  note  by  unlawful  means  of  which  the  plaintiff  had  notice, 
then  the  plaintiff  cannot  be  considered  an   innocent   holder  of 

the  note.  To  the  charge  contained  in  the  addition  made  hy  the 
court  to  the  request,  counsel  for  defendanl  excepted. 

As  to  the  fourth  request,  the  courl  charges  as  requested. 

As  to  the  fifth  request,  the  courl  charges  that  such  note 
would  1"'  invalid  in  a  suit  between  the  original  parties,  1ml  in 
the  hands  of  an  innocent  holder  for  value  before  maturity  and 
without  notice,  the  rule  would  be  subject  to  the  qualifications 
and  Limitations  already  expressed  in  this  charge.  To  the  refusal 
of  the  court  to  charge  as  stated  in  this  request,  and  to  the  charge 
as  given  by  the  court  in  relation  thereto,  counsel  for  defendant 
excepted. 

The  jury  found  a  verdict  for  the  plaintiff,  and  judgment  being 
entered  thereon,  the  defendant  brings  the  cause  into  this  court 
by  writ  of  error. 

Per  Curiam.  The  defendant  below  having  appeared  before 
the  justice  and  pleaded  to  the  plaintiff's  declaration,  and  twice 
obtained  adjournments  of  this  cause,  it  was  too  late,  on  the 
trial  of  the  appeal  in  the  circuit,  to  make  any  objection  for  want 
of  proper  service  of  the  summons.  After  joining  issue  upon 
the  merits,  it  was  immaterial  whether  there  had,  in  fact,  ever 
been  a  summons  issued. 

There  was  no  error,  therefore,  in  overruling  the  defendant's 
objection  to  the  introduction  of  evidence  upon  this  ground. 

The  note  declared  upon  was  filed  with  the  justice  at  the  time 
of  declaring;  and  by  the  statute  (Comp.  L.,  §  3767),  the  plaintiff 
was  therefore  entitled  to  read  the  note  in  evidence  without  prov- 
ing its  execution,  unless  defendant  denied  its  "execution  on 
oath"  at  the  time  of  pleading. 

Defendant  pleaded  the  general  issue,  with  a  notice  that  he 
would  prove  that  the  note  was  obtained  from  him  by  fraud  and 
without  consideration,  and  other  facts  substantially  the  same 
as  set  forth  in  his  affidavit  made  and  filed  with  the  plea  and 
notice.  This  affidavit  simply  denied  the  delivery  of  the  note  by 
the  defendanl,  or  any  other  person  on  his  behalf,  to  the  payee 
or  any  other  person  for  him  or  that  defendant  ever  placed  any 
stamp  upon  it  or  authorized  any  other  person  to  do  so,  or  to 
cancel  such  stamp,  and  stated  that  the  paper  was  taken  from 


BURSON    v.    HUNTINGTON.  33 

deponent's  house,  in  his  absence  from  the  same,  by  the  payee, 
without  the  knowledge  or  consent  of  deponent. 

It  is  unnecessary  to  determine  here  whether  the  exception  of 
the  note  under  this  statute  would  include  its  delivery  as  a  part 
of  the  execution ;  since,  granting  the  affirmative,  the  signature 
certainly  constitutes  a  part  of  its  execution,  and  the  affidavit 
being  special, — not  denying  the  execution  generally,  but  merely 
the  delivery  and  the  affixing  and  canceling  of  the  stamp, — 
admits,  by  a  very  clear  implication,  his  signature  to  the  instru- 
ment, and  clearly  indicates  that  he  intends  to  contest  only  the 
delivery,  the  stamping  and  canceling  of  the  stamp,  and  not  his 
signature ;  otherwise,  he  would  have  denied  the  execution  gener- 
ally and  brought  himself  within  the  language  of  the  statute. 
The  plaintiff,  therefore,  was  not  bound  to  prove  such  portion  of 
the  execution  as  was  not  denied,  but  admitted,  viz. :  the  signa- 
ture of  the  defendant. 

The  case  upon  the  trial  stood  in  all  respects  as  if  the  signa- 
ture of  the  defendant  had  been  admitted  in  open  court.  And 
this  admission  is  to  have  at  least  as  full  effect  as  the  clearest 
proof  of  such  signature. 

Now  proof  of  such  signature,  together  with  the  fact  that  the 
note  is  in  the  hands  of,  and  produced  by,  the  plaintiff  (the 
indorsement  being  proved  as  it  was  here),  furnishes  strong 
presumptive  evidence  of  delivery  by  the  maker  to  the  payee; 
and  this  is,  in  fact,  all  the  proof  ordinarily  given  by  the  plain- 
tiff of  such  delivery  when  the  execution  of  the  note  is  denied. 
It  establishes  a  prima  facie  case  upon  this  point;  and  it  is  for 
the  defendant,  if  he  contests  the  fact  of  delivery,  to  sustain 
his  denial  by  proof. 

The  indorsement  by  the  payee  having  been  proved,  there 
was,  therefore,  no  error  in  allowing  the  note  to  be  read  in 
evidence. 

We  think  the  court  erred  in  striking  out  the  testimony  of 
the  witness,  Fletcher,  showing  what  the  sister  of  the  defend- 
ant testified  to  on  the  trial  of  this  cause  before  the  justice,  she 
having  since  died.  The  ground  upon  which  this  was  stricken 
out  seems  to  have  been,  because  the  witness  did  not  recollect 
the  precise  words  of  the  former  testimony,  though  he  stated 
that  he  recollected  and  gave  the  substance.     We  think  the  ob- 


34  ESSENTIALS    OF    BILLS    AND    NOTES. 

jection,  under  such  circumstances,  untenable,  and  that  the  evi- 
dence was  admissible.  (Sec  1  Greenl.  Ev.  Sec.  165,  and  authori- 
ties cited.)  An  additional  -round  of  objection  was  staled,  viz.: 
that  plaintiff  was  shown  to  be  a  bona  fidt  holder  of  the  note; 
hut  the  court  could  not  have  stricken  out  the  evidence  on  this 
ground,  as  there  was  some  evidence  of  circumstances  tending  to 
show-  he  was  not  such  bona  fidt  bolder,  and  the  court  Lefl  this 
question  to  the  jury. 

But  this  note  was  indorsed  by  Goldw 1,  the  payee,  to  the 

plaintiff,  before  maturity,  for  a  valuable  consideration,  and  as 
plaintiff  claims,  in  good  faith  and  without  notice  of  a  want  of 
delivery  or  of  consideration,  or  any  other  circumstance  tending 
to  invalidate  it  in  the  hands  of  Goldwood;  and  his  evidence 
tended  to  show  this,  though  there  was  evidence  of  some  circum- 
stances tending  to  show  that  he  had  notice  of  the  circumstances 
under  which  the  paper  had  been  obtained. 

There  was  also  evidence  on  the  part  of  the  defendant,  strongly 
tending  to  show  that  the  note  never  was  delivered  by  the  de- 
fendant, but  that  Goldwood,  to  whose  order  it  was  drawn,  was 
endeavoring  to  sell  to  the  defendant  a  patent  right,  or  the  right 
of  certain  territory  under  it,  and  that  the  parties  had  so  far 
progressed  towards  the  making  of  an  arrangement  to  this  end, 
that  it  was  understood  and  verbally  agreed  that  Goldwood  was 
to  give  him  a  deed  of  certain  territory,  upon  defendant's  exe- 
cuting to  him  a  note  for  the  amount,  with  some  other  person 
signing  it  as  surety.  That  the  parties  being  in  the  defendant's 
house,  and  defendant's  sister  being  present,  Goldwood  wrote 
this  note,  and  defendant  signed  it;  but  as  a  surety  was  to 
be  obtained,  he  laid  the  note  on  the  table  and  went  out  to  find 
his  uncle  for  thai  purpose,  telling  Goldwood,  as  he  went  out, 
not  to  touch  it  till  he  came  back ;  but  that  while  defendant  was 
gone,  Goldwood  picked  up  the  paper  and  started  out  doors 
with  it;  that  defendant's  sister  then  told  him  to  let  the  note 
be  on  the  table  till  defendant  should  come  back,  to  which  Gold- 
wood  replied  he  was  going  to  have  the  note,  and  went  off  with 
it,  without  giving  any  deed  of  territory  or  anything  else  for  it. 
That  the  note,  at  this  time,  was  not  stamped,  and  defendant 
never  stamped  or  authorized  it  to  be  stamped;  that  some  four 
days  after,  Goldwood  wrote  to  defendant  requesting  him  to  come 


BURSON    v.    HUNTINGTON.  35 

immediately  to  Kalamazoo  "and  sign  stamp  on  the  note,"  and 
saying  if  defendant  was  not  there  by  Tuesday  evening  "I  shall 
consider  that  you  refuse  your  signature,  and  shall  act  accord- 
ingly." The  evidence  also  tended  to  show  that  defendant  called 
upon  Goldwood  about  that  time,  while  the  latter  had  the  note, 
and  demanded  it,  accusing  him  of  stealing  it,  to  which  Gold- 
wood  replied,  "Never  mind,  we  can  fix  that  up,"  and  said  he 
was  ready  to  do  as  he  had  agreed,  and  wanted  defendant  to 
get  another  signer,  and  he  would  give  him  a  deed  of  territory; 
but  defendant  said  he  did  not  want  the  deed,  but  wanted  the 
note.  Goldwood  refused  to  return  the  note,  or  to  give  a  deed 
till  he  got  another  signer. 

These  facts,  if  found  by  the  jury,  would  show,  not  only  that 
the  note  was  never  delivered  to  the  payee,  and  that  it  therefore 
never  had  a  legal  existence  as  a  note  between  the  original  par- 
ties, but  that  there  was  yet  no  completed  or  binding  agreement 
of  any  kind,  and  was  not  to  be  until  defendant  should  choose 
to  get  a  surety  on  the  note,  and  the  payee  should  give  him  a 
deed  of  territory.  Until  thus  completed,  the  defendant  had  a 
right  to  retract. 

As  a  general  rule,  a  negotiable  promissory  note,  like  any  other 
written  contract,  has  no  legal  inception  or  valid  existence,  as 
such,  until  it  has  been  delivered  in  accordance  with  the  purpose 
and  intent  of  the  parties. 

Delivery  is  an  essential  part  of  the  making  or  execution  of 
the  note,  and  it  takes  effect  only  from  delivery  (for  most  pur- 
poses) ;  and  if  this  be  subsequent  to  the  date,  it  takes  effect 
from  the  delivery  and  not  from  the  date.*  This  is  certainly  true 
as  between  the  original  parties. 

But  negotiable  paper  differs  from  ordinary  written  contracts 
in  this  respect :  that  even  a  wrongful  holder,  between  whom  and 
the  maker  or  indorser  the  note  or  indorsement  would  not  be 
valid,  may  yet  transfer  to  an  innocent  party,  who  takes  it  in 
good  faith,  without  notice  and  for  value,  a  good  title  as  against 
the  maker  or  indorser.  And  the  question  in  the  present  case  is, 
how  far  this  principle  will  dispense  with  delivery  by  the  maker. 

When  a  note  payable  to  bearer,  which  has  once  become  opera- 
tive by  delivery,  has  been  lost  or  stolen  from  the  owner,  and 

*  1  Pars,  ubi  supra. 


36  ESSENTIALS    OF    BILLS    AND    NOTES. 

has  subsquently  come  to  the  hands  of  a  bona  fuh  holder  for 
value,  thf  Latter  may  recover  against  the  maker,  and  all  in- 
dorsers  on  the  paper  when  in  the  hands  of  the  Loser;  and  the 
Loser  mus1  sustain  the  loss.f  I"  such  a  case  there  was  a  complete 
Legal  instrument;  the  maker  is  clearly  liable  to  pay  it  to  some 
one;    and  the  question  is  only  to  whom. 

But  in  the  case  before  us,  where  the  note  had  never  been 
delivered,  and  therefor  had  no  Legal  inception  or  existence  as  a 
note,  the  question  is  whether  he  is  Liable  to  pay  at  all,  even  to 
an  innocent   holder  for  value. 

The  wrongful  acl  of  a  thief  or  a  trespasser  may  deprive  the 
holder  of  his  property  in  a  note  which  has  once  become  a  note, 
or  property,  by  delivery,  and  may  transfer  the  title  to  an  inno- 
cent purchaser  for  value.  But  a  note  in  the  hands  of  the  maker 
before  delivery  is  not  property,  nor  the  subject  of  ownership, 
as  such;  it  is,  in  law,  but  a  blank  piece  of  paper.  Can  the 
theft  or  wrongful  seizure  of  this  paper  create  a  valid  contract 
on  the  part  of  the  maker  against  his  will,  where  none  existed 
before  ?  There  is  no  principle  of  the  law  of  contracts  upon  which 
this  can  be  done,  unless  the  facts  of  the  case  are  such  that,  in 
justice  and  fairness,  as  between  the  maker  and  the  innocent 
holder,  the  maker  ought  to  be  estopped  to  deny  the  making  and 
delivery  of  the  note. 

But  it  is  urged  that  this  case  falls  within  the  general  principle 
which  has  become  a  maxim  of  law,  that  when  one  of  two  inno- 
cent persons  must  suffer  by  the  acts  of  a  third,  he  who  has 
enabled  such  third  person  to  occasion  the  loss,  must  sustain  it. 
This  is  a  principle  of  manifest  justice  when  confined  within  its 
proper  limits.  But  the  principle  as  a  rule,  has  many  exceptions; 
and  the  point  of  difficulty  in  its  application  consists  in  deter- 
mining what  acts  or  conduct  of  the  party  sought  to  be  charged, 
can  properly  be  said  to  have  "enabled  the  third  person  to  occa- 
sion the  loss,"  within  the  meaning  of  the  rule.  If  I  leave  my 
horse  in  the  stable,  or  in  the  pasture,  I  cannot  properly  be  said 
to  have  enabled  the  thief  to  steal  him,  within  the  meaning  of  this 


t  In  the  case  of  Burson  v.  Huntington,  however,  the  note  had  never 
as  yet  received  any  vitality  as  a  contract,  for  the  reason  that  all  the 
requisites  necessary  to  give  it  an  existence  had  not  yet  been  complied 
with. 


BURSON   v.   HUNTINGTON.  37 

rule,  because  he  found  it  possible  to  steal  him  from  that  particu- 
lar locality.  And  upon  examination  it  will  be  found  that  this 
rule  or  maxim  is  mainly  confined  to  cases  where  the  party  who 
is  made  to  suffer  the  loss,  has  reposed  a  confidence  in  the  third 
person  whose  acts  have  occasioned  the  loss,  or  in  some  other 
intermediate  person  whose  acts  or  negligence  have  enabled  such 
third  person  to  occasion  the  loss;  and  that  the  party  has  been 
held  responsible  for  the  acts  of  those  in  whom  he  had  trusted 
upon  grounds  analogous  to  those  which  govern  the  relation  of 
principal  and  agent ;  that  the  party  thus  reposing  confidence  in 
another  with  respect  to  transactions,  by  which  the  rights  of 
others  may  be  affected,  has,  as  to  the  persons  to  be  thus  affected, 
constituted  the  third  person  his  agent  in  some  sense,  and  hav- 
ing held  him  out  as  such,  or  trusted  him  with  papers  or  indicia 
of  ownership  which  have  enabled  him  to  appear  to  others  as 
principal,  as  owner,  or  as  possessed  of  certain  powers,  the  person 
reposing  this  confidence  is,  as  to  those  who  have  been  deceived 
into  parting  with  property  or  incurring  obligations  on  the  faith 
of  such  appearances,  to  be  held  to  the  same  extent  as  if  the  fact 
had  accorded  with  such  appearances. 

Hence,  to  confine  ourselves  to  the  question  of  delivery,  the 
authorities  in  reference  to  lost  or  stolen  notes  which  have  become 
operative  by  delivery,  have  no  bearing  upon  the  question.  If 
the  maker  or  indorser,  before  delivery  to  the  payee,  leaves  the 
note  in  the  hands  of  a  third  person  as  an  escrow,  to  be  delivered 
upon  certain  conditions  only,  or  voluntarily  deliver  it  to  the 
payee,  or  (if  payable  to  bearer)  to  any  other  person  for  a  special 
purpose  only,  as  to  be  taken  to,  or  discounted  by  a  particular 
bank,  or  to  be  carried  to  any  particular  place  or  person,  or  to 
be  used  only  in  a  certain  way,  or  upon  certain  conditions  not 
apparent  upon  the  face  of  the  paper,  and  the  person  to  whom  it 
is  thus  entrusted  violate  the  confidence  reposed  in  him,  and  put 
the  note  into  circulation ;  this,  though  not  a  valid  delivery  as  to 
the  original  parties,  must,  as  between  a  bona  fide  holder  for 
value,  and  the  maker  or  indorser,  be  treated  as  a  delivery,  ren- 
dering the  note  or  indorsement  valid  in  the  hands  of  such  bona 
fide  holder;  or  if  the  note  be  sent  by  mail,  and  get  into  the 
wrong  hands ;  as  the  party  intended  to  deliver  to  some  one,  and 
selects  his  own  mode  of  delivery,  he  must  be  responsible  for  the 


38  ESSENTIALS    OP    BILLS    AND    NOTES. 

result.  These  principles  are  too  well  settled  to  call  for  the  cita- 
tion of  authorities,  and  manifestly  it  will  make  no  difference  in 
this  respect,  if  the  note  or  indorsemenl  were  signed  in  blank,  if 
the  maker  or  indorser  pari  with  the  possession,  or  authorize  a 
clerk  or  agenl  to  do  so,  and  it  is  dour. 

And  when  the  maker  or  indorser  has  himself  been  deceived 
by  the  fradulenl  acts  or  representations  of  the  payee  or  others, 
and  thereby  induced  to  deliver  or  part  with  the  note  or  indorse- 
ment, and  the  same  is  thus  fradulently  obtained  from  him,  he 
must,  doubtless,  as  between  him  and  an  innocent  holder  for 
value,  bear  the  consequences  of  his  own  credulity  and  want  of 
caution,  lie  has  placed  a  confidence  in  another,  and  by  putting 
the  papers  into  his  hands,  has  enabled  him  to  appear  as.  the 
owner,  and  to  deceive  others.  Cases  of  this  kind  are  numerous; 
but  they  have  no  bearing  upon  the  wrongful  taking  from  the 
maker,  when  he  never  voluntarily  parted  with  the  instrument. 
.Much  confusion,  however,  has  arisen  from  the  general  language 
used  in  the  books  and  sometimes  by  judges,  in  reference  to 
cases  where  the  maker  has  voluntarily  parted  with  the  posses- 
sion, though  induced  to  do  so  by  fraud;  when  it  is  laid  down 
as  a  general  rule,  that  it  is  no  defense  for  a  maker,  as  against 
a  bona  fide  holder,  to  show  that  the  note  was  wrongfully  or  fraud- 
ulently obtained,  without  attempting  to  distinguish  between 
cases  where  the  maker  has  actually  and  voluntarily  parted  with 
the  possession  of  the  note,  and  those  where  he  has  not. 

We  do  not  assert  that  the  general  rule  we  are  discussing — 
that  "where  one  of  two  innocent  parties  must  suffer,"  etc.— 
must  be  confined  exclusively  to  cases  where  a  confidence  has 
been  placed  in  some  other  person  (in  reference  to  delivery)  and 
abused.  There  may  he  cases  where  the  culpable  negligence  or 
recklessness  of  the  maker  in  allowing  an  undelivered  note  to  get 
into  circulation,  might  justly  estop  him  from  setting  up  non- 
delivery; as  if  he  were  knowingly  to  throw  it  into  the  street,  or 
otherwise  leave  it  accessible  to  the  public,  with  no  person  present 


*  Parsons  on  Bills  and  Notes,  109  to  114,  and  cases  cited,  espe- 
cially Putnam  v.  Sullivan,  4  Mass.,  45,  which  was  decided  expressly 
upon  the  ground  of  the  confidence  reposed  in  the  third  person,  as  to 
the  filling  up,  and  in  the  clerks  as  to  the  delivery. 


BURSON    v.    HUNTINGTON.  39 

to  guard  against  its  abduction  under  circumstances  when  he 
might  reasonably  apprehend  that  it  would  be  likely  to  be  taken. 

Upon  this  principle  the  case  of  Ingham  v.  Primrose  (7  C.  B. 
(N.  S.),  82),  was  decided,  where  the  acceptor  tore,  the  bill  into 
halves  (with  the  intention  of  canceling  it)  and  threw  it  into  the 
street,  and  the  drawer  picked  them  up  in  his  presence,  and 
afterwards  pasted  the  two  pieces  together  and  put  them  into 
circulation.* 

But  the  case  before  us  is  one  of  a  very  different  character. 
No  actual  delivery  by  the  maker  to  any  one  for  any  purpose. 

The  evidence  tends  to  show  that  when  he  left  the  room  in  his 
own  house,  the  note  being  on  the  table,  and  his  sister  remaining 
there,  he  did  not  confide  it  to  the  custody  of  the  payee,  but  told 
him  not  to  take  it,  and  no  final  agreement  between  them  had 
yet  been  made,  and  no  consideration  given.  Under  such  cir- 
cumstances he  can  no  more  be  said  to  have  trusted  it  to  the 
payee's  custody  or  confidence,  than  that  he  trusted  his  spoons 
or  other  household  goods  to  his  custody  or  confidence;  and  there 
was  no  more  apparent  reason  to  suppose  he  would  take  and 
carry  off  the  one,  than  the  other. 

The  maker,  therefore,  cannot  be  held  responsible  for  any 
negligence ;  there  was  nothing  to  prove  negligence,  unless  he  was 
bound  to  suspect,  and  treat  as  a  knave,  a  thief  or  a  criminal, 
the  man  who  came  to  his  house  apparently  on  business,  because 
he  afterwards  proved  himself  to  be  such.  This,  we  think,  would 
be  preposterous. 

We  therefore,  see  no  ground  upon  which  the  defendant  could 
be  held  liable  on  a  note  thus  obtained,  even  to  a  bona,  fide  holder 
for  value.  He  was  guilty  of  no  more  negligence  than  the  plaintiff 
who  took  the  paper,  and  the  plaintiff  shows  no  rights  or  equities 
superior  to  those  of  the  defendant. 

Such,  we  think,  must  be  the  result  upon  principle.  We  have 
carefully  examined  the  cases,  English  and  American,  and  are 


*  See  also  by  analogy  Foster  v.  Mackinnon,  Law  Rep.  4  Com.  B., 
704.  See  also  the  cases  where  the  execution  and  delivery  were  ob- 
tained through  fraud  and  misrepresentation,  Chapman  v.  Rose,  56  N. 
Y.,  137;  Page  v.  Krekey,  137  N.  Y.,  313;  Clark  v.  Pease,  41  N.  H.,  414; 
Walker  v.  Ebert,  29  Wis.,  194;  De  Camp  v.  Hanna,  29  Ohio  St.,  467; 
Green  v.  Wilkie,  66  N  W.  Rep.,  1046;  Puffer  v.  Smith;  22  Mich.,  479. 


■10  ESSENTIALS    OF    BILLS    AND    NOTES. 

satisfied  there  is  no  adjudged  case  in  the  English  courts,  so  far 
as  their  reports  have  reached  us,  which  would  warrant  a  recov- 
ery in  the  present  case.  Some  dicta  may  be  found,  the  general 
language  of  which  mighl  sustain  the  Liability  of  the  maker;  such 
as  thai  of  AJderson  Baron  in  Marston  v.  Allen,  (8  .M.  and  W., 
194),  cited  by  Duer.  J.,  in  Gould  v.  Segee  (5  Duer.  (N.  Y.), 
260),  and  that  used  by  Williams  J.,  in  Engham  v.  Primrose, 
(7  C.  B.  (X.  S.),  82).  But  a  reference  to  the  cases  will  show 
that  no  such  question  was  involved,  and  that  these  remarks  were 
wholly  outside  of  the  case. 

On  the  other  hand,  Hall  v.  Wilson,  (16  Barb.  548,  555-556), 
contains  a  dictum  fully  sustaining  the  views  we  have  taken. 

There  are,  however,  two  recent  American  cases,  where  the  note 
or  indorsement  was  obtained  without  delivery,  under  eircum- 
stances  quite  as  wrongful  as  those  in  the  present  case,  in  one  of 
which  the  maker,  and  in  the  other  the  indorser,  was  held  liable 
to  a  bona  fide  holder  for  value:  Shipley  v.  Carroll,  et  al.,  (45 
111.  285),  (case  of  maker)  and  Could  v.  Segee  (5  Duer  (N.  Y.) 
266).  But  in  neither  of  these  cases  can  we  discover  that  the 
court  discussed  or  considered  the  real  principle  involved;  and 
we  have  been  unable  to  discover  anything  in  the  cases  cited 
by  the  court  to  warrant  the  decision.  It  is  possible  that  the  case 
in  Illinois  may  depend  somewhat  upon  their  statute,  and  the 
note  being  made  as  a  mere  matter  of  amusement,  and  the  making 
not  being  justified  by  any  legitimate  pending  business,  the  maker 
might  peidiaps  justly  be  held  responsible  for  a  higher  degree  of 
diligence,  and  therefore  more  justly  chargeable  with  negligence 
under  the  particular  circumstances,  than  the  maker  in  the  pres- 
ent case. 

There  is  another  case,  "Worcester  Co.  Bank  v.  Dorchester  & 
Milton  Bank  (10  Cush.  488),  where  bank  bills  were  stolen  from 
the  vault  of  the  bank,  which  though  signed  and  ready  for  us  > 
had  never  been  yet  issued,  and  on  which  a  bona  fide  holder  for 
value  was  held  entitled  to  recover.  This,  we  are  inclined  to  think, 
was  correct.  The  court  intimated  a  doubt  whether  the  same 
rule  should  apply  to  bank  bills  as  to  ordinary  promissory  notes, 
and  as  to  the  latter,  failed  to  make  any  distinction  between  the 
question  of  delivery  and  questions  affecting  the  rights  of  the 
parties  upon  notes  which  have  become  effectual  by  delivery.    But 


CURRIER    v.    LOCKWOOD.  41 

we  think  bank  bills  which  circulate  universally  as  cash,  passing 
from  hand  to  hand  perhaps  a  hundred  times  a  day,  without  such 
inquiries  as  are  usual  in  the  cases  of  ordinary  promissory  notes 
of  individuals,  stand  upon  quite  different  grounds.  And,  con- 
sidering the  temptations  to  burglars  and  robbers,  where  large 
masses  of  bank  bills  are  known  to  be  kept,  and  the  much  greater 
facility  of  passing  them  off  to  innocent  parties,  without  detection 
or  identification  of  the  bills  or  the  parties,  and  that  the  special 
business  of  banks  is  dealing  in,  and  holding  the  custody  of 
money  and  bank  bills ;  it  is  not  unreasonable  to  hold  them  to  a 
much  higher  degree  of  care,  and  to  make  them  absolutely  re- 
sponsible for  their  safe  keeping.  "We  do  not  therefore  regard 
this  case  as  having  any  material  bearing  upon  the  case  before  us. 

We  think  the  Circuit  Court  erred  in  refusing  to  charge  upon 
this  point,  as  requested  by  the  defendant  below. 

We  do  not  think  there  was  any  error  in  refusing  to  charge 
that  the  want  of  a  stamp  on  a  note  would  be  such  circumstance 
of  suspicion  as  to  put  the  indorsee  upon  inquiry  in  taking  the 
note.  Under  our  decisions  the  note  would  be  valid  and  could  be 
enforced  in  our  courts  without  a  stamp. 

Some  other  minor  questions  were  raised,  but  we  do  not  think 
they  will  be  likely  to  arise  upon  a  new  trial. 

The  judgment  must  be  reversed  with  costs,  and  a  new  trial 
awarded. 

The  other  justices  concurred. 


What  Words  are  Sufficient  to  Constitute  the  Promise  or  Order* 

CURRIER  v.  LOCKWOOD. 

40  Connecticut,  349.    1873. 

An  action  in  assumpsit  upon  a  written  instrument  described 
as  a  note,  with  the  common  counts;  brought  originally  before 
a  justice  of  the  peace  and  appealed  to  the  Court  of  Common 
Pleas  of  Fairfield  county,  and  tried  in  that  court,  upon  the  gen- 
eral issue,  closed  to  the  court,  with  notice  that  the  action  was 


*  See  Sec.  774,  Vol.  6,  Cyclopedia  of  Law. 


42  ESSENTIALS    OF    BILLS    AND    NOTES. 

barred  by  the  statute  of  limitations.  The  suit  was  brought  June 
1,  1872. 

In  Hie  special  counts  the  plaintiff  averred  "thai  the  defendant, 
in  and  by  a  certain  writing  or  note,  under  his  hand  by  him  well 
executed,  dated  the  22d  day  of  January,  1863,  promised  the 
plaintiffs  to  pay  to  them  for  value  received,  the  sum  of  seventeen 
dollars  and  fourteen  cents,  ;is  by  the  said  writing  or  note  ready 
in  court  to  be  shown  appears." 

QpOD  the  trial  the  plaintiffs  offered  in  court  the  following 
writing: 

"$17.14.  Bridgeport,  Jan.  22d,  1863. 

"Due  Currier  &  Barker  seventeen  dollars  and  fourteen  cents, 
value  received.  Frederick  Lockwood." 

At  the  time  the  note  was  given  the  plaintiffs  were  partners 
under  the  name  of  Currier  &  Barker. 

To  this  evidence  the  defendant  objected,  upon  the  ground  that 
there  was  a  fatal  variance  between  the  evidence  offered  and  the 
special  count  in  the  declaration,  and  the  court  excluded  the 
same  as  evidence  to  prove  the  special  count,  but  admitted  it  to 
prove  an  indebtedness  under  the  common  counts. 

It  was  proved  that  sometime  within  three  years  before  the 
bringing  of  the  suit,  Barker,  one  of  the  plaintiffs,  met  the  defend- 
ant in  the  street,  and  reminded  him  of  the  note,  and  that  the 
defendant  said,  "I  will  give  you  a  ton  of  coal  for  it,"  and  no 
reply  being  made,  passed  along  on  his  way. 

It  was  further  proved  that,  about  the  time  the  suit  was 
brought,  the  defendant  came  into  Barker's  store  and  said  to 
him,  "Have  you  that  note?"  or  "Where  is  that  note?"  and 
"I  wish  to  settle  it,"  or  words  to  that  effect,  and  that  Barker 
told  him  that  the  note  was  in  Mr.  Steven's  hands  and  he  could 
settle  with  him,  and  that  the  defendant  replied,  "The  note 
is  outlawed  and  good  for  nothing,  and  you  can  go  ahead  if 
you  want  to. ' ' 

It  was  further  proved  that  the  note  was  given  for  clothing 
purchased  of  the  plaintiffs  by  the  defendant,  which  had  not 
been  paid  for. 

The  plaintiffs  claimed,  first,  as  a  matter  of  law,  that  the  writ- 
ing was  a  promissory  note,  not  negotiable   under  the  statute, 


CURRIER    v.    LOCKWOOD.  43 

and  was  not  barred  until  seventeen  years  from  its  date;  also, 
second,  that  the  facts  proved  an  acknowledgment  of  the  debt, 
and  a  new  promise,  which  took  it  out  of  the  statute  of  limita- 
tions. The  defendant  claimed  adversely  to  each  of  these  claims. 
The  court  ruled  adversely  to  the  claims  of  the  plaintiffs,  and 
held  that  the  debt  was  barred  by  the  statute  of  limitations,  and 
rendered  judgment  for  the  defendant  to  recover  his  costs. 

The  first  question  in  this  case  is  whether  the  writing  sued 
upon  is  a  promissory  note  within  the  meaning  of  those  words 
in  the  statute  of  limitations.  The  statute  is  as  follows:  "No 
action  shall  be  brought  on  any  bond  or  writing  obligatory,  con- 
tract under  seal,  or  promissory  note  not  negotiable,  but  within 
seventeen  years  next  after  an  action  shall  accrue."  The  instru- 
ment sued  upon  is  as  follows: 

"$17.14.  "Bridgeport,  Jan.  22d,  1863. 

"Due  Currier  &  Barker  seventeen  dollars  and  fourteen  cents, 
value  received.  Frederick  Lockwood.  " 

Promissory  notes  not  negotiable  are  by  the  statute  above 
recited  put  upon  the  footing  of  specialties  in  regard  to  the 
period  of  limitation,  and  for  most  other  purposes  such  notes 
have  been  regarded  as  specialties  in  Connecticut.  The  instru- 
ment however  to  which  this  distinction  has  been  attached  is  the 
simple  express  promise  to  pay  money  in  the  stereotyped  form 
familiar  to  all.  The  writing  given  in  evidence  in  this  case  is  a 
due  bill  and  nothing  more.  Such  acknowledgments  of  debts 
are  common  and  pass  under  the  name  of  due  bills.  They  are 
informal  memoranda,  sometimes  here  as  in  England  in  the 
form  of  "I.  0.  U. "  They  are  not  the  promissory  notes  which 
are  classed  with  specialties  in  the  statute  of  limitations.  The 
law  implies  indeed  a  promise  to  pay  from  such  acknowledg- 
ments, but  the  promise  is  simply  implied  and  not  expressed. 
It  is  well  said  by  Smith,  J.,  in  Smith  v.  Allen  (5  Day  (Conn), 
337),  "Where  a  writing  contains  nothing  more  than  a  bare 
acknowledgment  of  a  debt,  it  does  not  in  a  legal  construction 
import  an  express  promise  to  pay;  but  where  a  writing  imports 
not  only  the  acknowledgment  of  a  debt  but  an  agreement  to 
pay  it,  this  amounts  to  an  express  contract. ' ' 

In  that  case  the  words  "on  demand"  were  held  to  import 


44  ESSENTIALS    OF    BILLS    AND    NOTES. 

and  to  be  an  express  promise  to  pay.  That  ease  adopts  the 
correct  principle,  namely,  that  to  constitute  a  promissory  note 
there  must  be  an  express  as  contra-distinguished  from  an  im- 
plied promise.  The  words  "on  demand"  arc  here  wanting. 
The  words  "value  received,"  which  are  in  the  writing  signed  by 
the  defendant,  cannot  be  regarded  as  equivalent  to  the  words 
"on  demand."  The  case  of  Smith  v.  Allen  went  to  the  extreme 
limit  in  holding  the  writing  then  given  to  be  a  promissory  note, 
and  we  do  not  feel  at  liberty  to  go  further  in  that  direction  than 
the  court  then  went. 

The  writing  then  not  being  a  promissory  note,  the  plaintiff's 
action  is  barred  by  the  six  years  clause  of  the  statute,  unless  re- 
vived by  a  new  promise  to  pay. 

The  offer  of  the  defendant  to  give  a  ton  of  coal  for  the  note 
was  not  accepted.  It  was  a  mere  offer  of  compromise,  and 
clearly  no  acknowledgment  to  take  the  case  out  of  the  statute. 

The  conversation  between  the  parties,  recited  in  the  motion, 
taken  together  as  one  transaction,  was  held  by  the  Court  of 
Common  Pleas  not  to  be  sufficient  evidence  of  a  new  promise. 
The  result  of  the  interview  was  a  refusal  to  pay.  The  opening 
of  the  conversation  on  the  part  of  the  defendant  would  seem 
to  admit  the  justice  of  the  plaintiff's  demand.  The  expression 
of  a  wish  "to  settle  the  note"  would  seem  to  imply  that  it  was 
justly  due;  but  the  word  "settle"  is  somewhat  equivocal,  and 
taking  the  whole  interview  together,  we  think  the  Court  of 
Common  Pleas  made  no  mistake  in  law  in  deciding  as  it  did. 

A  new  trial  is  not  advised. 

In  this  opinion  Park  and  Carpenter,  Js.,  concurred. 

Foster,  J.  That  the  paper  before  us  is  more  correctly  de- 
scribed as  a  due  bill,  than  as  a  promissory  note,  is  unquestion- 
able. That  it  would  be  regarded  among  business  men,  in  the 
daily  transactions  of  life,  as  conferring  the  same  rights,  and 
imposing  the  same  liabilities,  as  a  promissory  note,  seems  to 
me  equally  unquestionable.  It  was  so  regarded  by  the  parties 
to  it ;  it  was  so  treated  and  so  spoken  of  whenever  it  was  alluded 
to.  This  is  manifest  from  the  record;  "The  defendant  came 
into  the  store  of  said  Barker  (one  of  the  plaintiffs'),  and  said  to 
him:    'Have  you  that  note?'  or  'Where  is  that  note?'  and  that 


CURRIER   v.    LOCKWOOD.  45 

he  'wished  to  settle  it.'  Barker  told  him  'the  note  was  in  Mr. 
Steven's  hands,  etc.'  "  Any  writing  importing  a  debt,  and  an 
obligation  to  pay  it,  especially  if  it  contains  the  words  "for 
value  received,"  is,  in  the  popular  judgment,  a  note.  This  in- 
strument is  clearly  of  that  character.  It  was  clearly  the  intent 
of  the  parties  so  to  make  it,  and  it  is  evident  that  they  supposed 
they  had  so  made  it.  To  hold  otherwise  would  seem  to  be  con- 
trary to  the  understanding  and  intent  of  the  parties. 

But  it  is  claimed  that  this  instrument  is  not,  in  law,  a  promis- 
sory note,  and  that  the  legislature,  in  passing  the  statutes  of 
limitation,  could  never  have  intended  to  put  such  contracts  on 
a  footing  with  specialties. 

Now  if  we  examine  the  various  works  on  bills  of  exchange 
and  promissory  notes,  we  do  not  find  that  the  learned  authors 
of  those  treatises  agree  upon  any  exact  and  precise  definition 
of  a  promissory  note.  Chitty,  Bayley,  Byles,  Story,  and  Par- 
sons, however,  all  agree  that  no  particular  words  are  necessary 
to  make  a  bill  or  note.  "It  is  sufficient  if  a  note  amount  to  an 
absolute  promise  to  pay  money."  (Chitty  on  Bills,  428).  Chan- 
cellor Kent,  following  substantially  Mr.  Justice  Bayley,  says, 
"A  note  is  a  written  promise,  by  one  person  to  another,  for  the 
payment  of  money,  at  a  specified  time,  and  at  all  events."  (3 
Com.,  74).  Judge  Parsons  says,  "A  promissory  note  is,  in  its 
simplest  form,  only  a  written  promise. "  ( 1  Parsons  on  Notes  and 
Bills,   14). 

These  definitions  imply  that  a  note  must  contain  an  express 
promise  to  pay.  And  Mr.  Justice  Story  says:  "But  it  seems 
that,  to  constitute  a  good  promissory  note,  there  must  be  an 
express  promise  upon  the  face  of  the  instrument  to  pay  the 
money;  for  a  mere  promise  implied  by  law,  founded  upon  an 
acknowledged  indebtment,  will  not  be  sufficient."  (Story  on 
Prom.  Notes,  14).  Courts  of  the  highest  authority,  however, 
both  in  England  and  in  this  country,  hold  otherwise;  nor  are 
all  the  text-writers  so  to  be  understood.  "No  precise  words  of 
contract  are  necessary  in  a  promissory  note,  provided  they 
amount,  in  legal  effect,  to  a  promise  to  pay."  (Byles  on  Bills,  8). 

"It  is  settled  that  a  note  need  not  contain  the  words  'promise 
to  pay, '  if  there  are  other  words  of  equivalent  import. "  ( 1  Par- 
sons on  Notes  and  Bills,  24).       What  words  are  of  "equivalent 


46  ESSENTIALS    OF    BILLS    AND    NOTES. 

import"  and  are  sufficienl  to  raise  a  promise  to  pay,  has  occa- 
sioned much  discussion.  "The  distinction  between  the  cases  on 
this  point,"  says  Mr.  Justice  Story,  in  a  note  on  the  section 
above  quoted,  "is  extremely  nice,  not  to  say  sometimes  very  un- 
satisfactory." As  long  ago  as  1795,  ('.  .).  Eyre,  sitting  at  Nisi 
Prius,  held  an  "I.  0.  U.  eighl  guineas,"  to  be  merely  an  acknow- 
ledgment of  a  debt,  and  neither  a  promissory  note  nor  a  receipt. 
(Fisher  v.  Leslie,  1  lisp.,  4-.">,.  In  1800,  in  the  case  of  Guy  v. 
Harris  (Reported  in  Chitty  on  Bills,  526),  Ld.  Eldon,  whose 
authority  is  certainly  not  inferior  to  that  of  C.  J.  Eyre,  held  a 
similar  paper  to  lie  a  promissory  note,  and  ruled  it  out  when 
offered  in  evidence,  because  it  had  not  a  stamp.  "I  owe  my 
lathee  *J170.  Jas.  Israel:" — This  paper  was  offered  in  evidence 
before  Ld.  Ellenborough,  and  he  said:  "I  entertain  some  doubts 
whether  this  paper  ought  not  to  have  been  stamped  as  a  promis- 
sory note,  but  on  authority  of  Fisher  v.  Leslie  (1  Esp.,  245),  I 
will  receive  it  in  evidence,  though  unstamped."  (Israel  v.  Israel,  1 
Camp.,  409.  Childers  v.  Boulnois,  Dow.  &  Ry.,  Nis.  Prius  cases, 
8,  decided  by  C.  J.  Abbot,  is  to  the  same  effect.  See  also  Tomp- 
kins v.  Ashby,  6  Barn.  &  Cres.,  541;  9  Dow.  &  Ry.,  543;  1  Mees 
&  Wels.,  32;  S.  C).  If  a  time  be  named  for  payment,  these 
instruments  are  differently  construed  (2  Mees.  &  Wels.,  74). 
In  Brooks  v.  Elkins,  "I.  0.  U.  £20,  to  be  paid  on  the  22d  inst," 
was  held  to  be  either  a  promissory  note,  or  an  agreement  for 
the  payment  of  £10  and  upwards,  and  in  either  case  required 
a  stamp.  "I.  O.  U.  £85,  to  lie  paid  May  5th,"  was  held  to  be  a 
good  promissory  note  (Waithman  v.  Elzee,  1  Car.  &  Kirw.,  35). 
The  cases  are  numerous  where  an  instrument  has  been  held 
to  be  a  good  note  without  an  express  promise  to  pay.  "I  do 
acknowledge  myself  to  be  indebted  to  A.  in  £10,  to  be  paid  on 
demand  for  value  received."  On  demurrer  to  the  declaration, 
the  court,  after  solemn  argument,  held  that  this  was  a  good  note 
within  the  statute  (Cashborne  v.  Dutton,  1  Selwyn,  Nisi  Prius, 
320).  In  the  case  of  Morris  v.  Lee  (1  Esp.,  426),  the  words 
were,  "I  promise  to  be  accountable  to  J.  S.,  or  order,  for  £50, 
value  received  by  me,"  and  it  was  held  a  good  promissory  note. 
The  court  say  they  "will  take  the  word  accountable  as  much  as 
if  it  had  been  pay."    They  also  notice  the  words  value  received. 


CURRIER    v.    LOCKWOOD.  47 

Fortescue,  J.  said,  "This  is  a  debt,  being  for  value  received,  and 
said  on  account."  (8  Mod.,  362;  I  Strange,  629;  2  Ld.  Raym., 
1396),  S.  C. 

Turning  to  the  American  cases,  we  find  in  our  own  court  the 
case  of  Smith  v.  Allen  (5  Day,  337).  This  was  brought  on  a 
paper  in  these  words:  "Due  John  Allen  $94.91,  on  demand." 
The  declaration  counted  on  a  promissory  note,  and  alleged  a 
promise  to  pay  in  the  usual  form,  setting  out  the  note  in  the 
declaration.  The  defendants  demurred,  and  the  Superior  Court 
held  the  declaration  sufficient.  On  writ  of  error  brought,  the 
Court  of  Errors  sustained  the  decision. 

Here  was  manifestly  no  express  promise  to  pay;  but  the  court 
held  that  there  was  one  implied,  and  so  sustained  the  claim  of 
the  plaintiff.  The  difference  between  this  and  the  case  at  bar 
is  very  slight.  This  contains  the  words  "on  demand,"  that  at 
bar  the  words  "value  received."  The  one  by  its  terms  is  due 
on  demand,  and  the  promise  to  pay  is,  therefore,  implied  by 
law,  the  other  is,  in  legal  effect,  due  on  demand,  and  it  is  dif- 
ficult to  see  a  good  reason  why  the  law  does  not  as  readily 
imply  a  promise  to  pay  such  a  debt,  as  one  due  on  demand  by 
its  own  terms.  Besides  a  valuable  consideration  is  expressed  in 
the  case  at  bar  by  the  words  "value  received,"  while  none  is 
expressed  in  the  case  of  Smith  v.  Allen.  Since  the  case  of 
Edgerton  v.  Edgerton  (8  Conn.,  6),  and  the  case  of  Bristol  v. 
Warner  (19  Conn.,  7),  it  is  quite  clear  that,  by  the  law  of  this 
state,  a  promissory  note,  not  negotiable,  and  not  purporting  on 
its  face  to  be  for  value  received,  does  not  imply  a  consideration. 
Smith  v.  Allen  and  the  case  at  bar,  are  alike  in  omitting  the 
words,  "or  order,"  and  "or  bearer,"  and  so  are  alike  non- 
negotiable.  Such  notes  however  are  regarded  as  within  the 
statute  of  3  and  4  Anne  (Smith  v.  Kendall,  6  T.  R.,  123). 

Passing  from  this  decision  in  our  own  court  to  the  courts  of 
New  York,  where  we  are  accustomed  to  find  questions  of  mer- 
cantile and  commercial  law  as  ably  discussed  and  as  intelligently 
decided  as  in  any  of  our  sister  states,  we  find  the  case  of  Russell 
v.  Whipple  (2  Cow.,  536).  The  suit  was  on  this  paper,  "Due 
S.,  or  bearer,  $10."  This  differs  from  the  case  at  bar  in  adding 
the  words  "or  bearer,"  and  omits  the  words  "value  received." 


48  ESSENTIALS    OF    BILLS    AND    NOTES. 

The  court  says  it  was  a  promissory  note,  ami  that  the  case  was 
too  plain  for  argument. 

In  Kimball  v.  Buntington  (10  Wend.,  675),  this  paper,  "Due 
R.  $325,  payable  on  demand,"  was  held  admissible  in  evidence 
as  a  promissory  note.  Judge  Nelson  says:  "The  acknowledg- 
ment of  indebtedness,  on  its  face,  implies  a  promise  to  pay  the 
plaintiffs,  and  the  payment  by  its  terms  is  to  be  in  money,  abso- 
lutely, on  demand. " 

In  Luqueer  v.  Prosser  (1  Hill,  259),  Judge  Cowan  says:  "If 
there  be  in  legal  effect  an  absolute  promise  that  money  shall  be 
paid,  all  the  resl  is  a  dispute  about  words.  *  *  *  The  whole 
inquiry  is,  does  the  paper  import  an  engagement  thai  money 
shall  be  paid,  absolutely?  If  it  do,  no  matter  by  what  words,  it 
is  a  good  note. ' ' 

In  Sackett  v.  Spencer  (29  Barb..  180),  this  paper,  "Due  S.  or 
bearer,  $340,  for  value  received  with  interest,"  the  court  says 
"is  a  good  promissory  note,  and  if  it  specifies  no  time  of  pay- 
ment, it  is,  in  legal  effect,  payable  immediately,  and  without 
grace." 

In  Franklin  v.  March  (6  N.  Ilamp.,  3G4),  the  Supreme  Court 
of  New  Hampshire  held  this  paper,  "Good  to  R.  C.  or  order, 
for  $30,  borrowed  money,"  to  be  a  good  promissory  note. 

In  addition  to  the  cases  above  cited,  the  following  are  very 
strong  authorities  to  sustain  the  claim  that  this  is  a  promissory 
note  (Cummings  v.  Freeman,  2  Humph.,  (Tenn.)  143,  where 
the  note  read  "Due  J.  F.  $200— borrowed  Oct.  21";  Harrow  v. 
Dugan,  6  Dana,  341 ;  Flemming  v.  Burge,  6  Ala.,  373 ;  Finney 
v.  Shirley,  7  Mo.,  42;  McGowan  v.  West,  id.,  569;  Lome  v.  Mur- 
phy 9,  Geo.,  338).  In  Johnson  v.  Johnson  (1  Ala.,  263),  the 
court  say:  "The  acknowledgment  of  a  debt,  due  for  a  valuable 
consideration,  clearly  implies  a  promise  to  pay  it  on  request." 

The  record  discloses  the  fact  that  the  paper  before  us  was 
given  for  the  purchase  of  clothing,  and  that  the  price  of  it  has 
never  been  paid.  Our  statute  of  limitation  bars  all  right  of 
action  upon  it,  unless  it  is  recognized  as  a  promissory  note.  So 
to  recognize  it  will  in  my  opinion  do  much  less  violence  to  law, 
than  will  be  done  to  justice  if  we  permit  this  defendant  thus  to 
escape  the  payment  of  an  honest  debt  for  the  necessaries  of  life. 


WHEATLEY    v.    STROBE.  49 

I  would  admit  the  paper  offered  in  evidence  in  support  of 
the  first  count  in  the  declaration. 
In  this  opinion  Phelps  J.,  concurred.* 


WHEATLEY  v.  STKOBE. 
12  Cal.  92.     1859. 

This  was  an  action  of  assumpsit  to  recover  a  sum  of  money. 
The  facts  as  they  appear  in  the  opinion  of  the  Court,  are  as 
follows : 

As  appears  from  the  record  in  this  case,  Strobe  was  indebted 
to  Wheatley,  and  Wheatley  to  Howel,  and  Howel  to  Wilcoxson 
&  Co.  To  pay  his  debt  "Wheatley  gave  Howel  an  order  on 
Strobe  for  $236,  payable  to  bearer.  This  order  is  not  set  forth 
in  the  record,  but  is  admitted  by  counsel  to  be  in  the  following- 
form: 

"Sac  City,  July  18,  1657. 
' '  Mr.  Strobe  :    Please  pay  the  bearer  of  these  lines  two  hun- 
dred and  thirty-six  dollars,  and  charge  the  same  to  my  account. 

"E.  D.  Wheatley." 

On  the  25th  of  July  the  order  was  presented  to  Strobe,  and 
by  him  was  verbally  accepted.  No  acceptance  in  writing  was 
made.  Soon  afterward  Wilcoxson  &  Co.,  whose  demand  against 
Howel  was  in  judgment,  and  upon  which  they  had  previously 
issued  execution,  garnished  the  debt,  if  any,  due  by  Strobe  to 
Howel,  by  virtue  of  this  order.  Subsequently  Wheatley  com- 
menced the  present  suit  against  Strobe  to  recover  the  original 

*  Due  Bills. — In  some  jurisdictions  an  ordinary  due-bill  such  as: 
"due  A";  "I.  O.  U.",  have  been  held  to  be  good  promissory  notes. 
Jacquin  v.  "Warren,  40  111.,  459;  Lee  v.  Balcon,  9  Colo.,  216;  Fleming 
v.  Burge,  6  Ala.,  373;  Brady  v.  Chandler,  31  Mo.,  28;  St.  Louis  R.  R. 
Co.   v.  Camden  Bk.,  47  Ark.,  545. 

In  order  to  amount  to  a  promissory  note  the  words  used  must  at 
least  be  words  from  which  a  promise  to  pay  money  can  be  implied. 
Price  v.  Jones,  105  Md.,  543;  Strickland  v.  Holbrook,  75  Cal.,  268.— 
Johnson  on  Bills  and  Notes  72n. 


50  ESSENTIALS    OF    BILLS    AND    NOTES. 

debt.  Strobo  admitted  the  original  indebtedness,  but  set  up 
the  order,  his  verbal  acceptance,  and  the  garnishment  of  Wil- 
coxson  &  Co.,  and  prayed  that  Bowel  and  Wileoxson  &  Co. 
mighl  be  made  parties,  and  he  be  allowed  to  pay  the  amount 
into  Court.  Wilcoxson  &  Co.  filed  a  petition  of  intervention, 
setting  up  substantially  the  same  facts,  with  the  additional  fact 
thai  the  order  was  given  for  a  debt  due  by  WheatW  to  Ilowel, 
.nn!  asserting  a  right  to  the  amount  of  the  debt  by  virtue  of 
thru-  garnishment,  and  praying  judgment  in  their  favor  for  the 
same.  The  plaintiff  demurred  to  the  answer  of  Strobe;  the 
demurrer  was  sustained,  and,  with  the  judgment  entered  thereon, 
the  petition  of  intervention  was  denied.  Defendant  appealed  to 
this  Court. 

Field,  J.  Upon  the  facts  in  this  case  the  appellants  make 
two  points.  First.  That  the  verbal  acceptance  of  Strobe  was 
sufficient  to  render  him  liable  to  Howel  upon  the  order  of 
Wheatley;  and,  Second.  If  this  be  untenable,  that  the  order 
operated  as  an  equitable  assignment  of  the  demand  against 
Strobe,  which  thus  became  subject  to  attachment  as  the  property 
of  Ilowel. 

The  first  of  these  points  cannot  be  sustained.  The  order 
possesses  all  the  requisites  of  an  inland  bill  of  exchange.  It 
contains  a  direction  for  the  payment  of  money  by  one  person 
to  another,  absolutely  and  at  all  events.  As  no  time  is  specified 
it  is  to  be  taken  as  payable  at  sight.  No  further  particulars 
than  these  are  essential  to  constitute  a  bill  of  exchange.  The 
insertion  of  the  word  "please"  does  not  alter  the  character  of 
the  instrument.  This  is  the  usual  term  of  civility  and  does  not 
necessarily  imply  that  a  favor  is  asked:  Story  on  Bills,  §  33  and 
notes ;  3  Kent,  74. 

The  order  being  a  bill  of  exchange  the  written  acceptance  of 
Strobe  was  necessary  to  charge  him  as  acceptor  under  the 
st. -it ute.  His  verbal  acceptance  was  insufficient:  Act  concerning 
Bills  of  Exchange,  §  6.  Upon  the  order,  therefore,  he  is  not 
liable. 

But  the  second  point  is  well  taken.  The  order,  though  not 
available  as  a  bill  of  exchange  against  Strobe  for  want  of  accept- 
ance, operated  as  an  equitable  assignment  of  the  demand  of 
Wheatley  to  Ilowel.     It  was  given  for  an  antecedent  debt,  and 


WHEATLEY    v.    STROBE.  51 

for  the  full  amount  of  the  demand  against  Strobe;  the  con- 
sideration was  valuable,  and  there  was  no  splitting  of  the  amount 
due  into  distinct  and  different  causes  of  action;  and  in  such 
cases  it  is  well  settled  that  an  order,  whether  accepted  or  not, 
operates  as  an  assignment  of  the  debt,  or  fund  against  which  it 
is  drawn. 

The  want  of  a  written  acceptance  does  not  affect  the  right  of 
Howel  to  the  money  due,  but  only  the  mode  of  enforcing  it. 
With  the  acceptance  he  could  have  sustained  an  action  upon  the 
order;  without  it  he  must  recover  upon  the  original  demand  by 
force  of  the  assignment.  Under  the  old  common-law  practice, 
the  action  could  only  be  maintained  in  the  name  of  the  assignor 
for  the  benefit  of  the  assignee,  but  under  our  system  it  may  be 
brought  in  the  name  of  the  assignee  as  the  party  beneficially 
interested.  Courts  of  Law,  equally  with  Courts  of  Equity,  gave 
effect  to  assignments  like  the  one  under  consideration,  by  con- 
trolling the  proceeds  of  the  judgments  recovered  for  the  benefit 
of  the  assignee :  Mandeville  v.  Welch,  5  Wheat.  227 ;  Corser  v. 
Craig,  1  Wash.  C.  C.  527 ;  Blin  v.  Prince,  20  Vt.  25 ;  Wheeler  v. 
Wheeler,  9  Cowen,  34;  Nesmith  v.  Drum,  8  Seargt.  &  Watts, 
9;  Robins  v.  Bacon,  3  Greenl.  346;  Adamson  v.  Robinson,  1 
Pick.  461. 

After  the  delivery  and  presentation  of  the  order,  the  debt  due 
by  Strobe  could  not  be  reached  on  attachment  issued  by  the 
creditors  of  Wheatley.  As  against  any  attempt  by  them  to 
enforce  its  payment  upon  any  such  proceeding,  the  order  would 
be  an  effectual  protection ;  and  we  do  not  perceive  why  it  should 
not  equally  avail  as  against  the  suit  of  the  assignor  himself, 
unless  it  is  made  to  appear  that  such  suit  is  prosecuted  for  the 
benefit  of  the  assignee:  Drake  on  Attach.,  chap.  37;  Black  v. 
Paul,  10  Mo.  103;  Lovely  v.  Caldwell,  4  Ala.  684;  Corser  v. 
Craig,  1  Wash.  C.  C.  424. 

In  this  State  all  actions  are  required,  with  some  few  specified 
exceptions,  to  be  brought  in  the  name  of  the  real  party  in  inter- 
est :  Prac.  Act,  §  4.  In  the  present  case,  upon  the  facts  alleged 
in  the  answer,  and  which  are  admitted  by  the  demurrer  to  be 
true,  it  is  clear  that  the  plaintiff  is  not  the  real  party  in  interest, 
and  there  is  no  allegation  in  the  complaint  that  the  suit  is 
prosecuted  for  the  benefit  of  Howel.    A  judgment  recovered  by 


52  ESSENTIALS    OF    BILLS    AND    NOTES. 

Will-alley  after  the  presentation  of  the  order  without  notice  to 
the  assignee,  would  be  no  protection  to  the  defendant  againsl  a 
suit  by  the  assignee  For  the  same  demand. 

The  position  of  the  defendanl   is  not  unlike  that  of  a  party 

summoned  as  garnishee,  after  receiving  notice  of  an  assignment 
by  his  creditor  of  the  demand  ;  if  lie  fails  in  answering  to  set  up 
the  assignmenl  and  judgmenl  in  consequence  passes  against  him 
as  a  debtor  of  the  assignor,  it  will  not  afford  protection  against 
a  suit  by  the  assignee:  Nugent  v.  Opdyke,  !)  Robinson,  4."):}; 
Crayton  v.  Clark,  11  Ala.  7.^7;  Foster  v.  White,  !)  Porte,-,  221. 
Upon  the  facts  set  up  in  the  answer,  we  are  of  opinion  that 
the  prayer  of  the  defendant  should  have  been  granted;  that  he 
should  have  had  Leave  to  deposit  the  amount  in  suit  in  Court, 
and  that  process  should  have  issued  to  bring  in  Bowel,  and  that 
Wileoxson  &  Co.  should  have  been  allowed  to  intervene. 

The  rights  between  the  plaintiff  and  Howel  to  the  demand  due 
by  Strobe,  should  be  first  determined,  and  afterward  the  claim 
asserted  by  the  intervenors  disposed  of.  This  claim,  of  course, 
can  only  be  a  matter  for  consideration  in  case  the  money  is 
adjudged  to  have  been  at  the  time  of  the  alleged  attachment  the 
property  of  Howel:  Van  Buskirk,  Adm.  v.  Roy,  8  How.  Prac. 
425. 

Judgment  reversed,  and  cause  remanded  for  further  proceed- 
ings. 


CHAPTER  HI. 

THE  PARTIES.* 


*  See  Sees.  775-786,  Vol.  6,  Cyclopedia  of  Law,  and  cases  there  cited. 
Also  see  the  cases  under  Infancy,  Husband  and  Wife,  Partnerships, 
Corporations,  etc.,  in  other  numbers  of  this  series  of  Case  Books. 

53 


CHAPTER  IV. 

THE  CONSIDERATION.* 

Effect  of  Illegality  in  Consideration.] 

WIDOE  v.  WEBB. 

20  Ohio  St.,  431;  5  Am.  Rep.,  664.     1870. 

The  original  action  out  of  which  the  present  proceeding  in 
error  arises,  was  brought  by  the  present  plaintiff  against  the 
defendant  before  a  justice  of  the  peace,  and,  by  appeal  from  his 
judgment,  came  into  the  court  of  common  pleas  of  Morrow 
county.  The  suit  was  upon  a  promissory  note,  made  and  de- 
livered by  the  defendant  to  the  plaintiff  for  $50  45-100,  and  the 
petition  was  in  the  usual  form. 

The  defendant  answered  that  the  sole  consideration  of  said 
note  was  spirituous  liquors  sold  by  the  plaintiff  to  the  defendant, 
which  had  not  been  inspected  according  to  law,  and  which  were 
so  sold  to  be  drank  on  the  premises  where  sold,  in  violation  of 
law. 

The  subject-matter  of  this  defence  was  traversed  by  reply, 
in  which  the  plaintiff  averred  that  the  note  was  given  for  goods, 
groceries,  and  provisions  sold  by  plaintiff  to  defendant  before 
the  date  of  the  note. 

The  issue  made  by  these  pleadings  was  tried  by  a  jury  and 
a  verdict  found  for  the  defendant,  which  the  plaintiff  moved  to 
se1  aside  and  grant  him  a  new  trial,  on  the  ground  of  error  in 
the  charge  of  the  court  to  the  jury,  and  that  the  finding  of  the 
jury  was  against  the  law,  and  against  the  manifest  weight  of  the 
evidence. 

This  motion  was  overruled,  and  judgment  entered  on  the 
verdict,  to  which  plaintiff  excepted. 


*  See  Sees.  787-793,  Vol.  6,  Cyclopedia  of  Law.     Also  Benjamin  v. 
Tillman,  and  Poplewell  v.  Wilson,  ante  Ch.  II. 
f  See  Sec.  792,  Vol.  6,  Cyclopedia  of  Law. 

54 


WIDOE    v.    WEBB.  55 

Prom  a  bill  of  exceptions  taken  by  the  plaintiff,  it  is  shown 
that  the  defendant  testified  upon  the  trial  that  the  note  in  suit 
was  given  for  a  balance  of  an  account  that  had  been  running 
for  a  year  and  a  half  preceding  the  date  of  the  note,  that  not 
less  than  three-fourths  of  the  account  was  for  spirituous  liquors 
bought  and  drank  by  him  from  time  to  time  at  plaintiff 's  grocery, 
including  therein,  however,  ale  and  beer;  and  that  part  of  the 
account  was  for  cigars,  tobacco,  and  lunches.  Other  witnesses 
called  by  the  defendant  testified  that  they  had  seen  defendant 
purchase  and  drink  spirituous  liquors  at  plaintiff's  grocery  and 
get  the  same  charged  in  his  account,  and  that  they  had  frequently 
seen  him  purchase  at  plaintiff's  grocery  and  have  charged  to 
his  account  all  kinds  of  groceries  for  family  use. 

On  plaintiff's  behalf,  both  he  and  his  clerk  testified  that  the 
account  which  formed  the  consideration  of  the  note  was  for 
groceries  purchased  out  of  the  plaintiff's  store,  and  that  no  part 
of  the  consideration  was  for  spirituous  liquors,  to  their  knowl- 
edge. 

Thereupon  counsel  for  plaintiff  asked  the  court  to  charge  the 
jury  "that  if  the  consideration  of  the  note  in  controversy  was 
an  account  for  spirituous  liquors  in  part,  sold  by  plaintiff  to 
defendant,  the  plaintiff  would  be  entitled  to  recover  so  much 
in  this  action  as  the  price  and  value  of  the  groceries  so  sold." 

This  charge  the  court  refused  to  give,  and  instructed  the  jury 
that  if  any  part  of  the  consideration  for  the  note  was  intoxicat- 
ing liquors  sold  to  defendant  by  the  plaintiff  in  violation  of 
the  statute  prohibiting  the  sale  of  intoxicating  liquor  to  be  drank 
on  the  premises  wmere  sold,  the  plaintiff  could  not  recover;  the 
law  being,  that  when  any  part  of  the  entire  consideration  of  a 
promise  is  illegal,  the  whole  contract  is  void. 

To  which  charge  of  the  court  and  refusal  to  charge  as  re- 
quested, the  plaintiff  excepted. 

The  plaintiff  subsequently  filed  his  petition  in  error  in  the 
district  court,  asking  for  a  reversal  of  the  judgment  of  the  court 
of  common  pleas,  on  the  grounds  of  error  in  the  refusal  to  charge 
as  requested,  and  in  the  charge  given  to  the  jury,  and  in  over- 
ruling the  motion  to  set  aside  the  verdict  and  grant  him  a  new 
trial.    The  district  court  affirmed  the  judgment  of  the  common 


56  THE    CONSIDERATION. 

pleas.  And  to  reverse  that  judgment  of  affirmance  the  present 
petition  in  error  is  prosecuted.     *     *     * 

The  evidence  in  this  case  tended  to  show  that  the  consideration 
of  the  note  sued  upon  was  an  existing  indebtedness  of  the  de- 
fendant to  the  plaintiff  on  account  for  goods,  etc.,  sold  and  de- 
livered by  the  plaintiff  to  the  defendant,  the  items  of  which  had 
accrued  at  various  times  dining  the  period  of  eighteen  months 
preceding  the  date  of  the  note.  Some  of  these  items  were  for 
necessary  family  groceries  and  some  for  spirituous  liquors,  sold 
to  be  drank  at  the  place  where  sold;  in  violation  of  the  statute. 
The  court  instructed  the  jury  that,  if  any  of  the  items  for 
spirituous  liquors  thus  illegally  sold  entered  into  and  formed 
part  of  the  consideration  of  the  note,  then  the  plaintiff  could 
not  recover;  the  law  being  that  when  any  part  of  the  entire 
consideration  of  a  promise  is  illegal  the  whole  contract  is  void. 
And  the  question  before  us  is :  Did  the  court  err  in  so  instruct- 
ing the  jury  as  to  the  law  applicable  to  the  case? 

The  concurrent  doctrine  of  the  text-books  on  the  law  of  con- 
tracts is,  that  if  one  of  two  considerations  of  a  promise  be  void 
merely,  the  other  will  support  the  promise;  but  that  if  one  of 
two  considerations  be  unlawful,  the  promise  is  void.  When, 
however,  for  a  legal  consideration,  a  party  undertakes  to  do 
one  or  more  acts,  and  some  of  them  are  unlawful,  the  contract 
is  good  for  so  much  as  is  lawful,  and  void  for  the  residue.  When- 
ever the  unlawful  part  of  the  contract  can  be  separated  from 
the  rest  it  will  be  rejected,  and  the  remainder  established.  But 
this  cannot  be  done  when  one  of  two  or  more  considerations  is 
unlawful,  whether  the  promise  be  to  do  one  lawful  act,  or  two 
or  more  acts,  part  of  which  are  unlawful ;  because  the  whole 
consideration  is  the  basis  of  the  whole  promise.  The  parts  are 
inseparable.  (Metcalf  on  Contr.,  246;  Addison  on  Contr.,  905; 
Chitty  on  Contr.,  730;  1  Parsons  on  Contr.,  456;  1  Parsons  on 
Notes  and  Bills,  217;  Story  on  Prom.  Notes,  §  190;  Byles  on 
Bills,  111;  Chitty  on  Bills,  94.) 

Whilst  a  partial  want  or  failure  of  consideration  avoids  a 
bill  or  note  only  pro  tanto,  illegality  in  respect  to  a  part  of  the 
consideration  avoids  it  in  toto.  The  reason  of  this  distinction  is 
said  to  be  founded,  partly  at  least,  on  grounds  of  public  policy, 
and  partly  on  the  technical  notion  that  the  security  is  entire,  and 


WIDOE    v.    WEBB.  57 

cannot  be  apportioned;  and  it  has  been  said  with  much  force, 
that  where  parties  have  woven  a  web  of  fraud  or  wrong,  it  is 
no  part  of  the  duty  of  courts  of  justice  to  unravel  the  threads 
and  separate  the  sound  from  the  unsound.  (Story  on  Prom. 
Notes,  and  Byles  on  Bills,  supra.) 

And,  in  general,  it  makes  no  difference  as  to  the  effect,  whether 
the  illegality  be  at  common  law,  or  by  statute.  (See  authorities, 
supra. ) 

This  doctrine  is  abundantly  sustained  by  the  whole  current 
of  the  decisions  on  the  subject,  both  in  England  and  in  this 
country.  (Featherstone  v.  Hutchinson,  Crokes  EL,  200;  Robin- 
son v.  Bland,  2  Burr.  R.,  1077 ;  Scott  v.  Gilmore,  3  Taunt.,  226 ; 
Thomas  v.  "Williams,  10  Barn.  &  Cress.,  664;  Jones  v.  Waite,  35 
E.  C.  L.  (5  Bing.,  N.  C,  341)  ;  Armstrong  v.  Toler,  11  Wheat., 
258;  Bates  v.  Watson,  1  Sneed,  376;  Orr  v.  Lacey,  2  Douglass, 
230 ;  9  Verm.,  23 ;  Deering  v.  Chapman,  22  Maine,  488 ;  Careleton 
v.  Woods,  8  Foster  (N.  H.),  290;  Hinds  v.  Chamberlain,  6  N.  H., 
225 ;  Hinman  v.  Woodruff,  11  Verm.,  582 ;  Perkins  v.  Cummings, 
2  Gray,  258 ;  8  Sm.  &  Marsh.,  624 ;  Loomis  v.  Newhall,  15  Pick., 
159;  Crawford  v.  Morrell,  8  Johns.,  253.) 

Quite  a  number  of  these  cases  cannot  be  distinguished  from 
the  case  under  consideration. 

Robinson  v.  Bland  was  the  case  of  a  suit  on  a  bill  of  exchange 
given  in  part  for  money  lost  at  play,  and  in  part  for  money 
lent.  The  declaration  contained  special  counts  on  the  bill,  and 
the  common  count  for  money  lent,  and  it  was  held  no  recovery 
could  be  had  on  the  bill,  because  part  of  its  consideration  was 
money  lost  at  play,  which  was  illegal ;  but  as  to  the  money  lent, 
the  plaintiff  was  allowed  to  recover  on  the  common  count. 

In  Scott  v.  Gilmore  (3  Taunt.,  226),  the  suit  was  also  on  a 
bill  of  exchange,  given  by  the  drawer  to  the  keeper  of  a  coffee 
house,  in  payment  for  the  balance  of  a  debt,  part  of  which  was 
for  small  sums  of  money  loaned,  and  part  for  spirits  sold  in  vio- 
lation of  the  statute,  and  it  was  held  by  Ch.  J.  Mansfield,  that 
the  security  being  entire  could  not  be  apportioned,  and  since  it 
was  given  partly  for  a  consideration  not  merely  void,  but  illegal, 
the  whole  bill  was  void.  Heath,  J.,  said:  "Perhaps  it  might 
be  different  if  for  part  of  the  bill  there  were  no  consideration." 

The  case  of  Deering  v.  Chapman,  supra,  was  a  suit  on  a  promis- 


58  THE    CONSIDERATION. 

sory  note  in  which  pari  of  the  consideration  was.  as  here,  for 
spirituous  liquors  previously  sold  in  violation  of  a  statute,  and 
several  of  the  other  rases  cited  arc  of  the  same  character.  In 
each  of  them  the  whole  oote  was  held  to  be  fainted  and  ut1 
void.  In  none  of  them  dues  a  distinction  appear  to  have  been 
taken  between  the  case  where  the  note  was  given  at  the  time  the 
illegal  transaction  took  place,  which  entered  into  the  considera- 
tion of  the  note,  and  was  the  immediate  inducemenl  to  its  exe- 
cution, and  the  case  where  the  note  was  subsequently  given  for 
the  purpose  of  carrying  out  or  securing  the  performance  of  the 
original  illegal  contract.  On  the  contrary,  they  clearly  proceed 
on  the  principle,  thai  whenever  the  subject-matter  of  the  con- 
tract can  be  traced  back,  between  privies,  to  an  original  illegal 
contract,  the  substituted  security  is  void.  (Adams  et  al.  v. 
Rowan  i  /  al.,  8  Smedes  &  Marsh.,  G24.) 

The  application  of  these  principles  to  the  present  case  com- 
pels us  to  say,  that  the  instruction  given  Hie  jury  by  the  court, 
upon  the  trial,  was  correct,  and  the  judgment  was  properly 
affirmed  by  the  district  court. 

The  suit  was  upon  a  promissory  note  alone — upon  a  single  and 
entire  promise.  This  note  was  given  in  settlement  of  an  account 
embracing  transactions  between  the  parties  for  a  period  of 
eighteen  months.  The  evidence  tended  to  show  that  whilst  some 
of  these  transactions  were  proper  and  legal,  yet  many  of  the 
items  of  the  account  were  for  intoxicating  liquors  sold  by  the 
plaintiff  to  the  defendant  in  direct  violation  of  the  provisions 
of  a  highly  penal  statute.  The  contract  evidenced  by  the  note 
was  illegal  and  void,  because  these  sales  of  liquors,  which 
formed  a  part  of  its  consideration,  were  clearly  illegal. 

With  respect  to  the  items  of  the  plaintiff's  account  which 
were  unconnected  with  the  illegal  sales,  he  might  well  have 
maintained  an  action  on  the  original  contracts  of  sale,  even 
after  the  giving  of  this  note.  For  being  utterly  void  it  dis- 
charged none  of  the  just  indebtedness  of  the  defendant.  But 
hi'  chose  to  sue  upon  the  note  which  was  prima  facie  evidence 
of  indebtedness  to  the  extent  of  the  whole  sum  promised  to 
be  paid,  and  thus  attempted  to  throw  upon  the  defendant  the 
burden  of  showing  how  much  of  it  was  given  upon  an  illegal 
consideration,  and  upon  the  court  the  task  of  separating  the 


WIDOE    v.    WEBE.  59 

sound  from  the  unsound.     If  this  effort  should  result  in  his 
losing  what  was  justly  due  him,  we  can  but  repeat  what  was 
said  in  a  similar  ease:     "It  is  but  a  reasonable  punishment  for 
including  with  his  just  due  that  which  he  had  no  right  to  take." 
We  are  not  unaware  of  a  seeming  conflict  between  the  con- 
clusion at  which  we  have  arrived,  and  the  third  point  in  the  syl- 
labus of  the  case  of  Doty  v.  The  Knox  County  Bank  (16  0.  St., 
133).  We  are  by  no  means  satisfied  that  the  judgment  in  that  case 
was  erroneous.     The  question  there  arose  upon  a  petition  to 
vacate  a  judgment  which  had  been  rendered  at  a  previous  term 
against  Doty  and  in  favor  of  the  bank  for  upwards  of  $4,000, 
by  confession  on  a  warrant  of  attorney.     The  suit  had  been 
brought  on  a  bill  of  exchange  for  $4,000,  and  it  appeared  upon 
the  hearing  of  the  petition  for  vacation,  that  a  portion  of  a 
prior  bill  for  $1,800  entered  into  and  formed  part  of  the  con- 
sideration of  the  bill  upon  which  judgment  had  been  entered. 
And  that,  in  the  previous  discounting  of  the  $1,800  bill,  some 
foreign  bank  bills  of  a  less  denomination  than  ten  dollars  had 
been  paid  out  by  the  bank,  contrary  to  the  provisions  of  the 
statute  upon  that  subject.     The  court  below  held  that  the  bill 
of  $1,800,  by  reason  of  the  premises,  was  wholly  void,  and  the 
bank  thereupon  remitted  upon   its   judgment  so  much  of  the 
$1,800   as  had   entered   into   the  consideration   of  the   bill    on 
which  judgment  had  been  entered.     The   residue  of  this  bill 
was  found  to  have  a  good  and  valid  consideration,  to  wit,  other 
and  previous  bills  of  exchange  on  which  Doty  was  justly  in- 
debted.    The  statute  forbade  the  vacating  of  the  judgment  until 
it  should  be  adjudged  that  there  was  a  valid  defence  to  the 
action;  and  the  question  was  whether,  after  this  remittitur,  the 
judgment  thus  reduced  should  be  wholly  vacated,  and  the  bank 
be  required  to  bring  its  action  on  the  valid  bills  which  had 
entered  into  the  consideration  of  the  bill  in  suit,   and   as  to 
which  there  was  no  defence.     The  court  refused  to  vacate  the 
judgment  in  toto,  and  drive  the  parties  into  further  litigation, 
which  was   required   neither  by   considerations   of  justice,   nor 
the  provision  of  the  statute,  and  would  have  left  the  parties 
where  they  then  stood. 

It  is  not  every  defence  which  might  be  available  when  set 
up  by  answer,  at  the  proper  time,  that  will  require  a  judgment 


I    I  THE    CONSIDERATION. 

to  be  vacated  in  order  that  it  may  be  interposed.  In  the  case 
referred  to,  the  judgment  of  the  court  below  was  affirmed  by 

this  court.  Whilst  we  think  that  judgment  may  well  he  up- 
held, yet  as  to  the  third  point  of  the  syllabus  which  holds  that, 
in  so  far  as  the  print-  illegal  bill  entered  into  the  consideration 
of  the  renewed  bill,  the  latter  was  merely  rendered  void  pro 
tanto  for  want  of  consideration,  a  majority  of  the  court,  upon 
lull  consideration,  think  it  cannot  be  reconciled  with  the  current 
of  the  authorities,  and  that,  in  so  far  as  it  conflicts  with  the 
present  decision,  it  is  untenable. 

Tin  judgment  <>/'  I  In  district  court  is  affirmed. 

Day,  J.,  concurred  in  the  judgment  of  affirmance,  but  not  in 
the  modification  of  the  case  of  Doty  v.  The  Knox  County  Bank. 


CHAPTER  V. 

ACCEPTANCE  AND   TRANSFER  CONSIDERED.* 

The  Purpose  of  Acceptance  to  Bind  the  Drawee.\ 

LUFF  v.  POPE. 
5  Hill,  413.     1843. 

On  the  merits  it  appeared  that  the  action  was  brought  upon 
the  following  instrument: 

"New  York,  Dec.  9,  1838. 
Thirty  days  after  sight  pay  Henry  Pope  or  his  order  sixty- 
six  dollars  and  ninety-seven  cents,  and  place  the  same  to  account 
of  yours,  "Abm.  Bell. 

"To  Mr.  Martin  Luff,  New  York." 

The  draft  was  presented  to  the  defendant  for  acceptance  two 
days  after  its  date,  and  was  duly  protested  by  a  notary  for  non- 
acceptance.  The  plaintiff  proved  that  he  had  a  demand  against 
Bell,  and  on  calling  for  payment  Bell  said  he  had  funds  in  the 
hands  of  the  defendant,  and  thereupon  made  this  draft  for  the 
amount  of  the  plaintiff's  demand.  On  presenting  the  draft 
the  defendant  said  he  would  pay  it  by  the  1st  of  February 
or  the  1st  of  March;  but  he  refused  to  accept  it,  or  to  make 
any  promise  in  writing.  The  plaintiff  gave  evidence  tending 
to  show  that  the  defendant  had  funds  of  Bell  in  his  hands 
sufficient  to  pay  the  bill,  and  the  defendant  gave  rebutting 
evidence.  The  defendant  moved  for  a  non-suit,  on  the  ground 
that  there  was  no  acceptance  in  writing,  and  because  the  defend- 
ant positively  refused  to  accept  the  bill.  The  motion  was  denied 
by  the  Justice,  on  the  ground  that  he  did  not  think  this  a  bill 
of  exchange  within  the  meaning  of  the  statute.  He  said  it 
was  known  to  all  the  parties  that  the  instrument  was  drawn  on 
a  particular  fund,  and  he  regarded  it  as  a  transfer  of  a  chose 

*  See  Sees.  794-813,  Vol.  6,  Cyclopedia  of  Law. 
t  See  Sec.  794-5,  Vol.  6,  Cyclopedia  of  Law. 

61 


62  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

in  action.  The  jury  were  afterward  charged  that  if  this  was 
a  hill  ni'  exchange  within  the  common  acceptation  of  business 
men  the  plaintiff  could  not  recover  for  want  of  a  written  ae- 
ceptance.  But  if  it  was  only  an  order  or  instrument  in  writing 
to  transfer  so  much  of  the  specific  fund  of  Bell  in  the  hands  of 
Luff  as  would  pay  Bell's  debl  to  Pop-',  then  it  was  not  within 
the  statute,  and  the  defendanl  was  Liable,  provided  he  had  funds. 
The  jury  found  for  the  plaintiff  as  before  mentioned.  Judg- 
ment of  affirmance  having  been  perfected  in  the  Superior  Court, 
the  defendant  in  the  Marine  Court  brought  error. 

Bronson,  J.  On  the  merits,  the  judgment  of  the  Marine 
Court  was  clearly  erroneous,  and  should  have  been  reversed. 
There  is  no  color  for  the  argument  that  the  instrument  on 
which  the  plaintiff  sued  was  not  a  bill  of  exchange.  A  bill  of 
exchange  is  a  written  order  or  request  by  one  person  to  another 
for  the  payment,  absolutely  and  at  all  events  of  a  specified 
sum  of  money  to  a  third  person.  Now  what  have  we  here? 
Bell  requests  Luff,  thirty  days  after  sight,  to  pay  a  specified 
sum  of  money  to  Pope.  It  is  payable  absolutely,  and  without 
reference  to  any  particular  fund;  and  if  it  be  not  a  bill  of 
exchange  the  writ  of  man  cannot  devise  one.  The  Justice 
thought  it  was  not  a  bill,  but  only  "an  order  or  instrument  in 
writing,"  because  it  was  said  at  the  time,  and  the  proof  tended 
to  establish  the  fact,  that  Luff  had  funds  in  his  hands  belonging 
to  Bell.  It  would  be  enough  to  say  that  a  written  instrument 
which  is  perfectly  plain  and  explicit  on  its  face  cannot  be 
changed  into  something  else  by  anything  which  the  parties  said 
at  the  time  of  making  it,  nor  by  any  inquiry  into  extrinsic  facts. 
It  must  speak  for  itself.  But  the  notion  that  there  cannot  be 
a  bill  of  exchange  where  the  drawee  has  funds,  if  it  be  not 
entirely  new,  cannot  date  back  further  than  1836.  It  con- 
tradicts the  very  theory,  and  all  the  right  use  of  a  bill  of  ex- 
change, which  is  always  supposed  to  be  drawn  on  funds.  In- 
calculable mischief  has  resulted  from  the  modern  practice  of 
drawing  without  funds,  which  is  little  better  than  a  fraudulent 
use  of  the  instrument.  And  although  such  bills  have  been 
tolerated,  we  have  not  yet  gone  so  far  as  to  make  it  unlawful 
to  pursue  the  old-fashioned  honest  course  of  drawing  where  the 
means  for  payment  have  already  been  provided. 


LUFF   v.    POPE.  63 

Whether  the  payee  takes  the  bill  in  satisfaction  of  a  debt  due 
from  the  drawer,  or  advances  the  money  for  it,  cannot  be  a  mat- 
ter of  any  importance  as  between  him  and  the  drawee.  It  does 
not  affect  the  nature  of  the  instrument. 

The  statute  requires  that  the  acceptance  should  be  in  writing: 
2  R.  S.  768,  §  6.  Here  there  is  not  only  the  want  of  any  writing, 
but  the  defendant  positively  refused  to  accept,  and  the  bill 
was  protested  for  non-acceptance.  And  yet  the  defendant  has 
been  held  liable.  An  examination  of  this  case  in  all  its  facts 
would  go  very  far  to  confirm  the  policy  of  the  statute.  But  it 
is  enough  that  we  cannot  repeal  it,  and  until  that  is  done  the 
plaintiff  cannot  recover.  He  must  take  his  remedy  against 
the  drawer;  and  if  Bell  has  any  money  in  the  hands  of  the  de- 
fendant, which  is  very  questionable,  he  must  sue  for  it.  It  is 
a  chose  in  action  which  cannot  be  transferred  so  as  to  give 
the  assignee  a  right  to  sue  in  his  own  name,  except  in  the  form 
of  an  accepted  bill  of  exchange.  To  give  a  parol  promise  to 
pay  the  effect  of  a  written  acceptance  of  the  bill  would  be  no 
better  than  a  device  to  get  around  the  statute  and  defeat  all  the 
valuable  ends  which  it  was  designed  to  accomplish.  If  Quin  v. 
Hanford,  1  Hill,  82,  does  not  support,  it  certainly  does  not  con- 
flict with  this  doctrine.  In  Harrison  v.  Williamson,  2  Edw. 
Rep.  430,  438,  the  Vice-Chancellor  said:  "A  bill  of  exchange 
has  not  the  effect  of  an  assignment  of  the  money  for  which  it 
is  drawn  in  the  hands  of  a  drawee ;  unless,  perhaps,  where  it 
is  drawn  upon  a  particular  fund,  and  then,  indeed,  by  the  law 
merchant,  it  loses  its  character  as  a  bill  of  exchange."  He 
undoubtedly  alluded  to  a  class  of  cases,  some  of  which  are  cited 
in  Quin  v.  Hanford,  where  an  order,  either  not  payable  in  money 
or  else  drawn  on  a  particular  fund,  has,  after  acceptance  or 
promise  of  payment,  been  allowed  to  operate  as  an  equitable 
assignment  of  the  fund.  And  see  Morton  v.  Naylor,  1  Hill, 
583.  This  has  been  done  upon  a  very  liberal  construction  of 
the  acts  of  the  parties  for  the  advancement  of  justice.  But 
those  cases  have  nothing  to  do  with  a  bill  of  exchange  proper, 
which  is  an  instrument  of  a  peculiar  nature,  and  governed  by  its 
own  laws.  Although  it  is  used  for  the  purpose  of  transferring 
funds,  and  has  that  effect  in  the  result,  it  never  operates  as  an 
assignment  to  the  payee  of  any  particular  money  in  the  hands  of 


64  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

the  drawee.  If  the  latter  accepts  the  bill,  the  payee  or  other 
holder  may  sue  upon  the  contrael  of  acceptance.  But  it*  the 
drawee  refuse  to  accept,  there  is  no  contract  between  him  and  the 
holder,  and  no  action  will  Lie.  And  this  is  so  although  the  drawee 
had  funds,  and  ought,  in  justice  to  the  drawer,  to  have  paid 
the  bill. 

We  think  all  these  judgments  are  erroneous,  and  they  must 
therefore  be  reversed. 

Judgments  reversed. 


PRICE  v.  NEAL. 

3  Burrows,  1354.     1762. 

This  was  an  action  upon  the  case  brought  by  Price  against 
Neal;  wherein  Price  declares  that  the  defendant  Edward  Neal 
was  indebted  to  him  in  80L  for  money  had  and  received  to 
his  the  plaintiff's  use;  and  damages  were  laid  to  100L  The 
general  issue  was  pleaded ;  and  issue  joined  thereon. 

It  was  proved  at  the  trial,  that  a  bill  was  drawn  as  follows: 
"Leicester,  22  November,  1760.  Six  weeks  after  date  pay  Mr. 
Rogers  Ruding  or  order  forty  pounds,  value  received  for  Mr. 
Thomas  Ploughfor;  as  advised  by,  Sir,  your  humble  servant 
Benjamin  Sutton.  To  Mr.  John  Price  in  Bushdane,  Cannon- 
street,  London;  indorsed  'R.  Ruding,  Antony  Topham,  Ham- 
mond and  Laroche.  Received  the  contents,  James  Watson  and 
Son:     witness  Edward  Neal.'  " 

That  this  bill  was  indorsed  to  the  defendant  for  a  valuable 
consideration;  and  notice  of  the  bill  left  at  the  plaintiff's  house, 
on  the  day  it  became  due.  Whereupon  the  plaintiff  sent  his 
servant  to  call  on  the  defendant,  to  pay  him  the  said  sum  of  40Z. 
and  take  up  the  said  bill:  which  was  done  accordingly. 

That  another  bill  was  drawn  as  follows:  "Leicester,  1st 
February,  1761.  Sir,  six  weeks  after  date  pay  Mr.  Rogers  Rud- 
ing or  order  forty  pounds,  value  received  for  Mr.  Thomas  Plough- 
for; as  advised  by,  Sir,  your  humble  servant  Benjamin  Sutton. 
To  Mr.  John  Price  in  Bush-lane,  Cannon-street,  London."    That 


PRICE    v.    NEAL.  65 

this  bill  was  indorsed,  "R.  Ruding,  Thomas  Watson  and  Son. 
Witness  for  Smith,  Right  &  Co."  That  the  plaintiff  accepted 
this  bill,  by  writing  on  it,  "accepted  John  Price;"  and  that  the 
plaintiff  wrote  on  the  back  of  it,  "Messieurs  Freame  &  Barclay, 
pray  pay  forty  pounds  for  John  Price." 

That  this  bill  so  accepted  was  indorsed  to  the  defendant  for  a 
valuable  consideration,  and  left  at  his  bankers  for  payment: 
and  was  paid  by  order  of  the  plaintiff,  and  taken  up. 

Both  these  bills  were  forged  by  one  Lee,  who  has  been  since 
hanged  for  forgery. 

The  defendant  Neal  acted  innocently  and  bona  fide,  without 
the  least  privity  or  suspicion  of  the  said  forgeries  or  of  either 
of  them ;  and  paid  the  whole  value  of  those  bills. 

The  jury  found  a  verdict  for  the  plaintiff,  and  assessed 
damages  801.  and  costs  40s.  subject  to  the  opinion  of  the  court 
upon  this  question: — 

"Whether  the  plaintiff,  under  the  circumstances  of  this  case, 
can  recover  back,  from  the  defendant,  the  money  he  paid  on 
the  said  bills,  or  either  of  them. "     *     *     * 

It  is  an  action  upon  the  case,  for  money  had  and  received  to 
the  plaintiff's  use.  In  which  action,  the  plaintiff  can  not  recover 
the  money,  unless  it  be  against  conscience  in  the  defendant,  to 
retain  it:  and  great  liberality  is  always  allowed,  in  this  sort  of 
action. 

But  it  can  never  be  thought  unconscientious  in  the  defendant, 
to  retain  this  money,  when  he  has  once  received  it  upon  a  bill 
of  exchange  indorsed  to  him  for  a  fair  and  valuable  considera- 
tion, which  he  has  bona  fide  paid,  without  the  least  privy  or 
suspicion  of  any  forgery. 

Here  was  no  fraud;  no  wrong.  It  was  incumbent  upon  the 
plaintiff,  to  be  satisfied,  "That  the  bill  drawn  upon  him  was 
the  drawer's  hand,"  before  he  accepted  or  paid  it;  but  it  was 
not  incumbent  upon  the  defendant,  to  inquire  into  it.  Here  was 
notice  given  by  the  defendant  to  the  plaintiff  of  a  bill  drawn 
upon  him:  and  he  sends  his  servant  to  pay  it  and  take  it  up. 
The  other  bill,  he  actually  accepts:  after  which  acceptance,  the 
defendant  innocently  and  bona  fide  discounts  it.  The  plaintiff 
lies  by,  for  a  considerable  time  after  he  has  paid  these  bills; 
and  then  found  out  "That  they  were  forged;"  and  the  forger 


66  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

comes  to  In-  haimvd.  ITe  made  no  objection  to  them,  at  the  time 
of  paying  them.  Whatever  negled  there  was,  was  on  his  side. 
The  defendanl  had  actual  encouragemenl  from  the  plaintiff  him- 
self, Eor  negotiating  the  second  bill,  from  the  plaintiff's  having 
without  any  scruple  or  hesitation  paid  the  first  :  and  he  paid  the 
whole  value,  bona  fide.  It  is  a  misfortune  which  has  happened 
without  tlic  defendanl 's  fault  or  nmlcct.  If  there  was  no  ne.-ii-.-t 
in  the  plaintiff,  ye1  there  is  no  reason  to  throw  off  the  loss  from 
one  innocent  man  upon  another  innocent  man:  but,  in  this  case, 
if  there  was  any  fault  or  negligence  in  any  one,  it  certainly  was 
in  the  plaintiff,  and  not  in  the  defendant. 
Rule. — That  the  postea  be  delivered  to  the  defendant. 


Presentment  for  Acceptance — When  and  How  to  be  Made.* 

MONTELIUS  v.  CHARLES. 
76  111.  303.     1875. 

Mr.  Justice  Scott.  This  action  was  upon  an  inland  bill  of 
exchange,  in  the  name  of  a  remote  assignee,  against  the  drawers. 
One  important  question  is  whether  the  holders  had  been  guilty 
of  such  laches  before  presenting  it  to  the  drawee  for  payment, 
as  would  bar  a  recovery  against  the  drawers. 

Defendants  were  engaged  in  the  banking  business  at  Piper 
City,  in  this  State.  On  the  8th  day  of  September,  1873,  on 
the  application  of  James  McBride,  they  drew  their  draft  on 
the  Franklin  Bank  of  Chicago,  payable  at  sight,  to  the  order 
of  John  Strank,  who  then  resided  at  Canton  in  Dakota.  It 
was  on  the  same  day  deposited  in  the  post-office,  directed  to 
the  payee  at  Canton,  who  received  it  after  some  delay,  attrib- 
utable alone  to  the  fault  of  the  mails.  Having  passed  through 
the  hands  of  several  holders,  it  was  presented  on  the  13th  day 
of  October,  1873,  to  the  bank  for  payment,  which,  being  re- 
fused, it  was  protested  and  notice  given  through  the  post-office 
to  the  drawers  and  the  several  indorsers.     In  the  meantime  the 


*  See  Sees.  796-798,  Vol.  6,  Cyclopedia  of  Law. 


MONTELIUS    v.    CHARLES.  67 

Franklin  Bank,  on  which  the  draft  had  been  drawn,  had  failed 
and  gone  into  bankruptcy. 

The  law  is  settled  by  an  unbroken  line  of  decisions  that  all 
drafts,  whether  foreign  or  inland  bills,  must  be  presented  to 
the  drawee  within  a  reasonable  time,  and  in  case  of  non-payment 
notice  must  be  given  promptly  to  the  drawer,  to  charge  him. 
But  what  is  a  reasonable  time  under  all  the  circumstances  is 
sometimes  a  most  difficult  question.  The  general  doctrine  is 
each  case  must  depend  on  its  own  peculiar  facts,  and  be  judged 
accordingly. 

In  Strong  v.  King,  35  111.  9,  it  was  declared  to  be  a  general 
rule,  the  holder  of  a  sight  draft  must  put  it  in  circulation  or 
present  it  for  payment,  at  farthest,  on  the  next  business  day 
after  its  reception,  if  within  the  reach  of  the  person  on  whom 
it  is  drawn.  In  the  case  at  bar,  the  draft  was  put  in  circula- 
tion, and  the  point  is  made,  the  mere  fact  it  was  not  presented 
for  payment  until  after  the  lapse  of  thirty-five  days,  is  per  se 
such  laches  on  the  part  of  the  holders  as  would  discharge  the 
drawers. 

In  Muilman  v.  D'Eguino,  2  H.  Black.  565,  Eyre,  C.  J., 
said:  "Courts  have  been  very  cautious  in  fixing  any  time 
for  an  inland  bill,  payable  at  a  certain  period  after  sight,  to 
be  presented  for  acceptance,  and  it  seems  to  me  more  necessary 
to  be  cautious  with  respect  to  foreign  bills  payable  in  that 
manner.  If,  instead  of  drawing  their  foreign  bills  payable  at 
usances  in  the  old  way,  merchants  choose,  for  their  own  con- 
venience, to  draw  them  in  this  manner  and  make  the  time 
commence  when  the  holder  pleases,  I  do  not  see  how  the 
Courts  can  lay  down  any  precise  rule  on  the  subject.  I  think, 
indeed,  the  holder  is  bound  to  present  the  bill  in  a  reasonable 
time,  in  order  that  the  period  may  commence  from  which  the 
payment  is  to  take  place.  The  question  what  is  a  reasonable 
time,  must  depend  on  the  peculiar  circumstances  of  the  case, 
and  it  must  always  be  for  the  jury  to  determine  whether  laches 
is  imputable  to  the  plaintiff." 

Buller,  J.:  "Due  diligence  is  the  only  thing  to  be  looked 
at,  whether  the  bill  be  a  foreign  or  an  inland  one,  and  whether 
it  be  payable  at  sight,  at  so  many  days  after,  or  in  any  other 
manner.     But  here  I  must  observe  that  I  think  a  rule  may 


68  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

thus  far  be  laid  down  with  regard  to  all  bills  payable  at  sight, 
or  at  a  certain  time  after  sight,  namely,  that  they  ought  to 
be  put  in  circulation.  If  they  are  circulated  the  parties  are 
known  to  the  world  and  their  credil  is  looked  to;  and  if  a  bill 
drawn  a1  three  days'  sighl  were  kepi  ou1  in  thai  way  for  a 
year,  I  cannol  say  there  would  be  Indus.  But  if,  instead  of 
putting  it  in  circulation,  the  holder  were  to  lock  it  up  for  any 
length  of  time,  I  should  say  he  was  guilty  of  laches." 

Bills,  both  inland  and  foreign,  having  the  quality  of  nego- 
tiability, are  intended  in  some  degree,  to  be  used  as  a  part  of 
the  circulation  of  the  country,  and  are  indispensable  in  the 
conduct  of  extended  commercial  transactions.  They  afford  a 
safe  and  convenient  mode  of  making  payments  of  indebted- 
ness between  distant  points.  Banking  houses  that  for  a  con- 
sideration, issue  such  bills,  must  be  understood  to  do  so  in 
accordance  with  the  known  custom  of  the  country — that  they 
will  be  put  in  circulation  for  a  limited  period.  If  this  were 
not  so  their  value  would  be  greatly  depreciated,  and  their 
utility  in  commercial  transactions  would  be  destroyed.  Were 
it  understood  the  purchaser  of  such  a  bill  was  bound  to  make 
all  possible  dispatch  to  present  it  to  the  drawee  or  lose  his 
recourse  on  the  drawer,  no  prudent  man  would  feel  safe  in 
taking  one.  He  may  know  the  drawer  from  whom  he  pur- 
chases the  bill,  and  be  willing  to  rely  on  his  responsibility, 
but  in  many  instances  he  has  and  can  have  no  knowledge  of 
the  drawer's  correspondent,  the  drawee.  Commercial  usage 
has,  therefore,  placed  the  responsibility  upon  the  drawer,  and 
he  is  presumed,  in  consideration  of  the  premium  paid,  to  as- 
sume all  risks  as  to  the  solvency  of  the  drawee  for  such  rea- 
sonable time  as  the  bill  shall  be  kept  in  circulation.  There 
can  be  no  doubt,  if  the  holder  locks  it  up  and  keeps  it  out  of 
circulation,  he  assumes  all  risks,  and  in  case  the  bill  is  dis- 
honored, his  laches  in  that  regard  would  bar  a  recovery  againsl 
the  drawer.  Such  bills  are  not  issued  with  a  view  to  be  held 
as  a  permanent  security,  with  a  continuing  liability  on  the 
drawer.  Illustrative  of  the  law  of  this  branch  of  the  case,  is 
Shute  v.  Bobbins,  3  C.  &  P.  80. 

The  difficulty  is  to  determine  for  what  length  of  time  such 
a  bill  may  be  kept  in  circulation,  consistently  with  a  continuing 


MONTELIUS    v.    CHARLES.  69 

liability  on  the  drawer.  The  rule  adopted,  as  we  have  seen, 
is,  it  must  be  presented  in  a  reasonable  time  under  all  the 
circumstances.  But  Courts,  not  infrequently,  experience  great 
perplexity  in  making  a  distinction  between  a  reasonable  time 
for  the  presentation  of  such  paper  and  laches  on  the  part  of  the 
holder.  Every  case  differs  so  essentially  in  its  facts,  it  has  given 
rise  to  many  apparently  contradictory  decisions,  but  through 
all  of  them  is  noticeable  the  efforts  of  the  Courts  to  ascertain 
whether  the  bill  was  kept  in  circulation  for  only  a  reasonable 
period  in  the  regular  course  of  business.  When  that  fact  is 
once  established  the  liability  of  the  drawer  is  regarded  as  con- 
tinuing. It  will  be  found  the  decisions  differ  only  in  what 
the  various  Courts  deemed  reasonable  in  each  particular  case. 

In  Robinson  v.  Ames,  20  Johns.  147,  the  bill  declared  on 
was  drawn  on  the  6th  of  March,  but  not  presented  for  pay- 
ment to  the  drawees  until  the  20th  of  May.  In  the  meantime 
the  drawees  had  failed,  but  in  a  well-reasoned  opinion  the  Court 
came  to  the  conclusion  there  was  no  such  laches  as  would  dis- 
charge the  drawer. 

In  Jordon  v.  Wheeler,  20  Tex.  698,  the  bill  in  suit  was  put 
in  circulation  and  indorsed  by  defendants  without  having  been 
presented  for  acceptance  before  it  came  to  the  hands  of  the 
plaintiff;  that  a  little  more  than  a  month  elapsed  before  he 
presented  it  for  payment,  and  that  was  declared  to  be  accord- 
ing to  usage. 

In  Nichols  v.  Blackmore,  27  Tex.  586,  the  Court  was  of 
opinion  a  delay  of  forty-seven  or  forty-eight  days  was  not  such 
laches  as  would  forfeit  the  right  of  the  holder  to  recourse  against 
the  drawer  in  default  of  payment  by  the  drawees. 

Many  other  cases  of  the  same  import  might  be  cited,  but 
these  are  sufficient  for  our  present  purpose.  They  establish, 
beyond  doubt,  the  fact,  there  is  no  fixed  period  in  which  the 
bill  must  be  presented  for  payment,  but  that  each  case  must 
be  decided  on  its  own  peculiar  facts  in  the  light  of  commercial 
usage. 

In  the  case  at  bar  the  bill  was  immediately  put  in  circula- 
tion. It  was  mailed  to  the  payee  on  the  day  it  bore  date,  to 
his  proper  address  in  Dakota.  Some  delay  occurred,  attrib- 
utable to  interruption  in  the  transmission   of   the   mails,   but 


70      ACCEPTANCE  AND  TRANSFER  CONSIDERED. 

this  fad  could  nol  be  imputed  to  the  payee  as  laches.  On  the 
receipt,  the  payee  immediately  undertook  and  availed  of  the 
first  opportunity  to  negotiate  the  bill.  It  was  kept  in  circula- 
tion, and  no  delay  was  suffered  other  than  that  incident  to 
tin-  transaction  of  business  in  a  sparsely  populated  territory 
like  Dakota.  The  facts  and  circumstances  proven  show  no  Indus 
on  the  pari  of  any  holder  that  would  operate  to  discharge  the 
drawers. 

Aside  from  the  presumption  that  will  be  indulged,  the  drawers 
must  have  known  the  bill  was  liable  to  be  put  in  circulation 
for  .1  limited  period.  The  evidence,  though  conflicting,  war- 
ranted the  Court  in  finding  the  drafl  was  sold  with  the  knowl- 
edge that  it  was  to  be  sent  to  the  payee  in  Dakota.  That  being 
so,  on  every  principle  of  justice,  waiving  all  consideration  of 
commercial  usage,  defendants  ought  to  be  held  to  have  taken 
upon  themselves  the  risk  of  the  failure  of  the  drawee  for  such 
reasonable  time  as  it  would  take  the  bill  to  go  there  and  be 
returned  in  the  usual  course  of  business,  all  things  considered, 
and  to  be  presented  to  the  drawee  at  Chicago.  We  entertain 
no  doubt  their  obligation  is  to  this  extent.  It  would  be  ab- 
surd to  suppose  it  was  within  the  contemplation  of  the  drawers 
the  bill  was  to  be  sent  directly  to  the  drawee  at  Chicago  for 
payment.  The  law  imposed  no  such  duty  upon  the  party  pro- 
curing it,  lie  could  rightfully  send  it  to  his  creditor  and  be 
guilty  of  no  laches. 

No   error   appearing   in   the    record,   the   judgment    will    be 

affirmed. 

Judgment  affirmed. 


CHEEK  v.  ROPER, 

5  Esp.  175.     1805. 

'Assumpsit  on  a  bill  of  exchange  against  defendant  as 
drawer. 

The  declaration  stated  in  the  usual  form  that  the  defendant 
drew  his  bill  of  exchange  for  £60  on  one  J.  Hammond,  tanner, 
in  Bristol,  which  was  duly  shown,  and  presented  to  the  said 


DAVIS   v.    CLARKE.  71 

Hammond  for  his  acceptance,  etc.,  who  refused  to  accept  or  pay 
the  same,  by  reason  whereof  the  defendant  became  liable. 

To  prove  the  fact  of  the  bill  having  been  presented  to  Ham- 
mond for  his  acceptance,  the  plaintiff  proved  that  the  bill  was 
sent  by  the  witness,  who  was  called,  who  carried  it  to  the  place 
which  was  described  to  him  as  Hammond's  house,  he  offered 
it  to  some  person  in  a  tan-yard,  who  refused  to  accept  it;  but 
he  did  not  know  Hammond's  person,  nor  could  he  swear  that 
the  person  to  whom  he  offered  the  bill  was  he,  or  represented 
himself  to  be  so. 

Lord  Ellenborough  said  that  the  allegation  respecting  the 
bill  was  a  material  one,  as  the  drawer  could  only  become  liable 
on  the  acceptor's  default,  which  default  must  be  proved.  That 
the  evidence  here  offered  proved  no  demand  on  Hammond,  and 
was  therefore  insufficient,  so  that  the  plaintiff  could  not  recover 
on  the  bill.  Some  evidence  must  be  given  of  an  application 
to  the  party  first  liable. 


The  Acceptance  Considered. — 1.     Who  May  Accept* 

DAVIS  v.  CLARKE. 

6  Adolphus  &  Ellis,  N.  8.,  16;  6  Queen's  Bench,  16;  51  Eng., 
C.  L.,  15.     1843. 

Assumpsit.  The  first  count  stated  that  "one  John  Hart," 
on  the  8th  day  of  March,  1838,  "made  his  bill  of  exchange 
in  writing  and  directed  the  same  to  the  defendant,  and  thereby 
required  the  defendant  to  pay  to  him  or  his  order  100Z.,"  value 
received,  at  twelve  months  after  date,  which  had  elapsed  before 
the  commencement,  etc. ;  ' '  and  the  defendant  then  accepted  the 
said  bill,  and  the  said  John  Hart  then  indorsed  the  same  to 
plaintiff;"  averment  of  notice  to  defendant,  promise  by  him  to 
pay  plaintiff,  and  that  he  did  not  pay. 

There  was  also  a  count  on  an  account  stated. 

The  first  plea  denied  the  acceptance ;  the  second  the  promise ; 

*  See  Sec.  799,  Vol.  6,  Cyclopedia  of  Law. 


ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

the  third  alleged  a  discharge  of  the  defendant  by  the  Insol- 
vent   Debtor's  Court. 

The  replication  joined  issue  on  the  first  two  pleas,  and  tra- 
versed  the  discharge  alleged  in  the  third;  on  which  traverse  issue 
was  joined. 

On  the  trial,  before  Parke,  B.,  at  the  Essex  Summer  assizes, 
1843,  a  written  paper,  in  the  following  terms,  was  given  in 
evidence  on  behalf  of  the  plaintiff. 

"£100.  "London,  8th  March,  1838. 

"Twelve  months  after  date  pay  to  me  or  my  order  one  hun- 
dred pounds,  value  received. 
"To  Mi'.  John  Hart.  John  IIakt." 

Across  the  face  of  this  instrument  was  written  the  follow- 
ing: 

"  Accepted. 

"II.  .1.    Clarke. 

"payable  at  819  Strand." 

This  writing  across  the  face  was  proved  to  lie  the  defendant's 
handwriting. 

No  other  evidence  being  produced,  the  learned  baron  directed 
a  non-suit.  In  Michaelmas  term,  1843,  Petersdorff  obtained  a 
rule  nisi  for  a  new  trial. 

The  defendant  has  not  accepted  the  hill  described  in  the 
declaration:  the  instrument  produced  is  indeed  no  bill  of  ex- 
change. In  Gray  v.  Milner  (8  Taunt.,  739),  where  the  instru- 
ment was  not  addressed  to  any  one,  but  had  only  a  place  of 
payment  added,  and  in  other  respects  resembled  the  document 
heir  proved,  the  acceptor  was  held  Liable,  as  having  admitted 
himself,  by  the  acceptance,  to  be  the  party  pointed  out  by  the 
place  of  payment.  Here  the  drawer  addresses  himself;  and  the 
instrument  more  nearly  resembles  a  promissory  note.  It  may 
be  that  the  defendant  might  have  been  sued  as  a  surety. 

This  principle  of  Gray  v.  Milner  (8  Taunt.,  739),  applies. 
The  defendant,  by  his  acceptance,  estops  himself  from  disputing 
bis  own  character  and  the  nature  of  the  instrument.  In  Pol- 
hill  v.  Walter  (3  B.  &  Ad..  114),  indeed,  it  was  said  that  no 
one  could  be  liable  as  acceptor,  unless  he  were  the  person  to 
whom  the  bill  was  addressed,  or  an  acceptor  for  honor.  But 
the  question  of  acceptance  in  this  form  was  not  then  distinctly 


DAVIS    v.    CLARKE.  73 

before  the  court.  Here  it  may  be  contended  that  the  defendant 
identifies  himself  as  the  person  addressed  under  the  name  of 
John  Hart.  The  judge  at  nisi  prius  was  requested,  but  re- 
fused, to  allow  an  amendment,  by  calling  the  instrument  a 
promissory  note  made  by  the  defendant;  the  writing  the  name 
was  a  new  making,  according  to  the  principle  of  Penny  v.  Li- 
nes. (1  C.  M.  &  R.,  439 ;  S.  C,  5  Tyrwh.,  107 ;  he  referred  also 
to  Jackson  v.  Hudson,  2  Camp.,  447.) 

Lord  Denman,  C.  J.  There  is  no  authority,  either  in  English 
law  or  the  general  law  merchant,  for  holding  a  party  to  be 
liable  as  acceptor  upon  a  bill  addressed  to  another.  We  must 
take  it  on  this  instrument  that  the  defendant  is  different  from 
the  party  to  whom  it  is  addressed.  Polhill  v.  Walter  (3  B. 
&  Ad.,  114),  and  Jackson  v.  Hudson  (2  Camp.,  447),  are  au- 
thorities showing  that  the  defendant  here  cannot  be  sued  as 
acceptor.  In  Jackson  v.  Hudson,  Lord  Ellenborough  treated 
an  acceptance  by  a  party  not  addressed  as  "contrary  to  the 
usage  and  custom  of  merchants." 

No  previous  case  seems  to  be  exactly  like  this.  In  Jackson 
v.  Hudson  (2  Camp.,  447),  there  was  one  acceptance  by  the 
party  to  whom  the  bill  was  addressed,  prior  to  the  acceptance 
by  the  defendant.  In  Gray  v.  Milner  (8  Taunt.,  739),  no  party 
was  named  in  the  address;  and  I  must  say  that  the  decision  in 
that  case  appears  to  me  to  go  to  the  extremity  of  what  is  con- 
venient. It  may  be  considered  as  having  been  decided  on  the 
ground  that  the  acceptance  was  not  inconsistent  with  the  ad- 
dress, so  that  the  acceptor  might  be  deemed  to  have  admitted 
himself  to  be  the  party  addressed.  But  here  another  person, 
the  drawer  himself,  is  named  in  the  address.  I  do  not  know 
that  a  party  may  not  address  a  bill  to  himself,  and  accept, 
though  the  proceeding  would  be  absurd  enough.  Then  it  is 
said  that  the  defendant  is  estopped:  but  that  cannot  be  sup- 
ported where  the  instrument  shows,  on  its  face,  that  he  cannot 
be  the  acceptor. 

The  only  question  is,  whether  the  defendant  is  such  an  ac- 
ceptor as  is  described  in  the  declaration;  that  is  of  a  bill  of 
exchange  directed  to  him.  No  doubt  this  can  be  so  only  where 
he  is  the  drawee;  but  here  the  bill  is  not  addressed  to  the  de- 


74  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

I'm,  hint  at  all.     This  is  thereto  re  not  an  acceptance  within  the 
custom  of  merchants. 

The  safe  course  is  to  adhere  to  the  mercantile  rule  that  an 
acceptance  can  be  made  only  by  the  party  addressed,  or  for  his 
honor.  Here  the  last  is  imt  pretended;  and  the  first  can  not  be 
[uvMinied.  If  the  John  Har1  addressed  is  different  from  the 
John  Hart  who  draws,  there  is  still  no  acceptance;  if  the  same, 
then  the  instrument   is  a  promissory  note  and  not  a  bill  of  ex- 

change. 

Rule.     Discharged. 


2.    Form    of    Acceptance.— May    be    Verbal    Unless   Required 
by  Statute  to  be  in  Writing. 

COOLIDGE  ET  AL.  v.  PAYSON  ET  AL. 

2  Wheaton's  Rep.,  66;  Condensed  Reports  U.  S.,  vol.  4,  p.  33. 

1817. 

Mr.  C.  J.  Marshall.  This  suit  was  instituted  by  Payson  & 
Co.,  as  indorsers  of  a  bill  of  exchange  drawn  by  Cornthwaite 
&  Cary,  payable  to  the  order  of  John  Randall,  against  Coolidge 
&  Co.  as  the  acceptors. 

At  the  trial  the  holders  of  the  bill  on  which  the  name  of 
John  Randal]  was  indorsed,  offered,  for  the  purpose  of  prov- 
ing the  indorsement,  an  affidavit  made  by  one  of  the  defend- 
ants in  the  cause,  in  order  to  obtain  a  continuance,  in  which 
he  referred  to  the  hill  in  terms  which,  they  supposed,  implied 
a  knowledge  on  his  pari  that  the  plaintiffs  were  the  rightful 
owners.  The  defendants  objected  to  the  bill's  going  to  the 
jury  without  further  proof  of  the  indorsement;  but  the  court 
determined  that  it  should  go  with  the  affidavit  to  the  jury,  who 
might  be  at  Liberty  to  infer  from  thence  that  the  indorsement 
was  made  by  Randall.  To  this  opinion  the  counsel  for  the  de- 
fendants in  the  Circuil  Court  excepted,  and  this  court  is  divided 
on  the  question  whether  the  exception  ought  to  be  sustained. 

On  the  trial    it  appeared  that  Coolidge  &  Co.  held  the  pro- 
ceeds  of  part  of  the  cargo  of  the  Hiram,  claimed  by   Corn- 


COOLIDGE    v.    PAYSON.  75 

thwaite  &  Cary,  which  had  been  captured  and  libelled  as  lawful 
prize.  The  cargo  had  been  acquitted  in  the  District  and  Cir- 
cuit Courts,  but,  from  the  sentence  of  acquittal,  the  captors 
had  appealed  to  this  court.  Pending  the  appeal  Cornthwaite 
&  Cary  transmitted  to  Coolidge  &  Co.  a  bond  of  indemnity, 
executed  at  Baltimore  with  scrolls  in  the  place  of  seals,  and 
drew  on  them  for  two  thousand  seven  hundred  dollars.  This 
bill  was  also  payable  to  the  order  of  Randall,  and  indorsed 
by  him  to  Payson  &  Co.  It  was  presented  to  Coolidge  &  Co., 
and  protested  for  non-acceptance.  After  its  protest  Coolidge 
&  Co.  wrote  to  Cornthwaite  &  Cary  a  letter,  in  which,  after 
acknowledging  the  receipt  of  a  letter  from  them,  with  the  bond 
of  indemnity,  they  say,  "This  bond,  conformably  to  our  laws, 
is  not  executed  as  it  ought  to  be;  but  it  may  be  otherwise  in 
your  state.  It  will  therefore  be  necessary  to  satisfy  us  that 
the  scroll  is  usual  and  legal  with  you  instead  of  a  seal.  We 
notice  no  seal  to  any  of  the  signatures."  "We  shall  write 
our  friend  Williams  by  this  mail,  and  will  state  to  him  our 
ideas  respecting  the  bond,  which  he  will  probably  determine. 
If  Mr.  W.  feels  satisfied  on  this  point,  he  will  inform  you,  and 
in  that  case  your  draft  for  two  thousand  dollars  will  be  hon- 
ored." 

On  the  same  day  Coolidge  &  Co.  addressed  a  letter  to  Mr. 
Williams,  in  which,  after  referring  to  him  the  question  respect- 
ing the  legal  obligation  of  the  scroll,  they  say,  "You  know  the 
object  of  the  bond,  and,  of  course,  see  the  propriety  of  our 
having  one,  not  only  legal,  but  signed  by  sureties  of  unques- 
tionable responsibility,  respecting  which  we  shall  wholly  rely 
on  your  judgment.  You  mention  the  last  surety  as  being 
responsible;  what  think  you  of  the  others?" 

In  his  answer  to  this  letter,  Williams  says,  "I  am  assured 
that  the  bond  transmitted  in  my  last  is  sufficient  for  the  pur- 
pose for  which  it  was  given,  provided  the  parties  possess  the 
means ;  and  of  the  last  signer,  I  have  no  hesitation  in  express- 
ing my  firm  belief  of  his  being  able  to  meet  the  whole  amount 
himself.  Of  the  principals  I  cannot  speak  with  so  much  con- 
fidence, not  being  well  acquainted  with  their  resources.  Under 
all  circumstances,  I  should  not  feel  inclined  to  withhold  from 
them  any  portion  of  the  funds  for  which  the  bond  was  given." 


76  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

on  the  day  on  which  this  letter  was  written,  Cornthwaite 
&  Cary  railed  on  Williams,  to  inquire  whether  he  had  satisfied 
Coolidge  &  Co.  respect mir  the  1m. ml.  Williams  stated  the  sub- 
stance of  the  letter  he  had  written,  and  read  to  him  a  part  of 
it.  One  of  the  firm  of  Payson  &  Co.  also  called  on  him  to 
make  the  same  inquiry,  to  whom  he  gave  the  same  informa- 
tion, and  also  read  from  his  letter  book  the  letter  he  had  written. 

Two  days  after  this,  the  hill  in  the  declaration  mentioned 
was  drawn  by  Cornthwaite  &  Cary,  and  paid  to  Payson  &  Co. 
in  part  of  the  protested  bill  of  two  thousand  seven  hundred 
dollars,  by  whom  it  was  presented  to  Coolidge  &  Co.,  who  re- 
fused to  accept  it,  on  which  it  was  protested,  and  tins  action 
brought  by  the  holders. 

On  this  testimony,  the  counsel  for  the  defendants  insisted 
that  the  plaintiffs  were  not  entitled  to  a  verdict. 

The  court  instructed  the  jury,  that  if  they  were  satisfied 
that  Williams,  on  the  application  of  the  plaintiffs,  made  after 
seeing  the  letter  from  Coolidge  &  Co.  to  Cornthwaite  &  Cary, 
did  declare  that  he  was  satisfied  with  the  bond  referred  to  in 
that  letter,  as  well  with  respect  to  its  execution,  as  to  the  suffi- 
ciency of  the  obligors  to  pay  the  same;  and  that  the  plain- 
tiffs, upon  the  faith  and  credit  of  the  said  declaration,  and 
also  of  the  letter  to  Cornthwaite  &  Cary,  and  without  having 
seen  or  known  the  contents  of  the  letter  from  Coolidge  &  Co. 
to  Williams,  did  receive  and  take  the  hill  in  the  declaration  men- 
tioned, they  were  entitled  to  recover  in  the  present  action:  and 
that  it  was  no  legal  objection  to  such  recovery  that  the  promise 
to  accept  the  present  bill  was  made  to  the  drawers  thereof, 
previous  to  the  existence  of  such  bill,  or  that  the  hill  had  been 
taken  in  part  payment  of  a  pre-existing  debt,  or  that  the  said 
Williams,  in  making  the  declarations  aforesaid,  did  exceed  the 
private  instructions  given  to  him  by  Coolidge  &  Co.  in  their 
letter  to  him. 

To  this  charge  the  defendants  excepted.  A  verdict  was  given 
for  the  plaintiffs,  and  judgment  rendered  thereon,  which  judg- 
ment is  now  before  this  court  on  a  writ  of  error. 

The  letter  from  Coolidge  &  Co.  to  Cornthwaite  &  Carey  con- 
tains no  reference  to  their  letter  to  Williams  which  might  sug- 
gest the  necessity  of  seeing  that  letter,  or  of  obtaining  informa- 


COOLIDGE    v.    PAYSON.  77 

tion  respecting  its  contents.  They  refer  Cornthwaitc  &  Cary 
to  Williams,  not  for  the  instructions  they  had  given  him,  but 
for  his  judgment  and  decision  on  the  bond  of  indemnity.  Under 
such  circumstances,  neither  the  drawers  nor  the  holders  of  the 
bill  could  be  required  to  know,  or  could  be  affected  by,  the 
private  instructions  given  to  Williams.  It  was  enough  for  them, 
after  seeing  the  letter  from  Coolidge  &  Co.  to  Cornthwaite  & 
Cary,  to  know  that  Williams  was  satisfied  with  the  execution  of 
the  bond  and  the  sufficiency  of  the  obligors,  and  had  informed 
Coolidge  &  Co.  that  he  was  so  satisfied. 

This  difficulty  being  removed,  the  question  of  law  which  arises 
from  the  charge  given  by  the  court  to  the  jury  is  this:  Does 
a  promise  to  accept  a  bill  amount  to  an  acceptance  to  a  person 
who  has  taken  it  on  the  credit  of  that  promise,  although  the 
promise  was  made  before  the  existence  of  the  bill,  and  although 
it  is  drawn  in  favor  of  a  person  who  takes  it  for  a  pre-existing 
debt? 

In  the  case  of  Pillans  &  Rose  v.  Van  Mierop  &  Hopkins 
(1765),  (3  Burr.,  1663),  (1765),  the  credit  on  which  the  bill  was 
drawn  was  given  before  the  promise  to  accept  was  made,  and 
the  promise  was  made  previous  to  the  existence  of  the  bill.  Yet 
in  that  case,  after  two  arguments,  and  much  consideration,  the 
Court  of  King's  Bench  (all  the  judges  being  present  and  con- 
curring in  opinion)  considered  the  promise  to  accept  as  an  ac- 
ceptance. 

Between  this  case  and  that  under  consideration  of  the  court, 
no  essential  distinction  is  perceived.  But,  it  is  contended,  that 
the  authority  of  the  case  of  Pillans  &  Rose  v.  Van  Mierop  & 
Hopkins  is  impaired  by  subsequent  decisions. 

In  the  case  of  Pierson  v.  Dunlop  et  al.,  (Cowp.,  571),  the 
bill  was  drawn  and  presented  before  the  conditional  promise 
was  made  on  which  the  suit  was  instituted.  Although,  in  that 
ease,  the  holder  of  the  bill  recovered  as  on  an  acceptance,  it  is 
supposed  that  the  principles  laid  down  by  Ld.  Mansfield,  in 
delivering  his  opinion,  contradict  those  laid  down  in  Pillans  & 
Rose  v.  Van  Mierop  &  Hopkins.  His  lordship  observes,  "it 
has  been  truly  said,  as  a  general  rule,  that  the  mere  answer  of 
a  merchant  to  the  drawer  of  a  bill,  saying,  'he  will  duly  honor 
it,'  is  no  acceptance,  unless   accompanied  with   circumstances 


78  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

which  may  induce  a  third  person  to  take  the  bill  by  indorse- 
ment; but  if  there  arc  any  such  circumstances,  it  may  amount 
to  an  acceptance,  though  the  answer  be  contained  in  a  letter 
to  the  drawer." 

If  the  case  of  Pillans  &  Rose  v.  Van  Mierop  &  Hopkins  had 
been  understood  to  lay  down  the  broad  principle  that  a  naked 
promise  to  accept,  amounts  to  an  acceptance,  the  case  of  Pier- 
son  v.  Dunlop  certainly  narrows  that  principle  so  far  as  to 
require  additional  circumstances  proving  that  the  person  on 
whom  the  bill  was  drawn,  was  bound  by  his  promise,  either  be- 
cause he  had  funds  of  the  drawer  in  his  hands,  or  because  his 
letter  had  given  credit  to  the  bill,  and  induced  a  third  person 
to  take  it. 

It  has  been  argued,  that  those  circumstances  to  which  Ld. 
Mansfield  alludes,  must  be  apparent  on  the  face  of  the  letter. 
But  the  court  can  perceive  no  reason  for  this  opinion.  It  is 
neither  warranted  by  the  words  of  Ld.  Mansfield,  nor  by  the 
circumstances  of  the  case  in  which  he  used  them.  "The  mere 
answer  of  a  merchant  to  the  drawer  of  a  bill,  saying  he  will 
duly  honor  it,  is  no  acceptance  unless  accompanied  with  cir- 
cumstances," etc.  The  answer  must  be  "accompanied  with  cir- 
cumstances;" but  it  is  not  said  that  the  answer  must  contain 
those  circumstances.  In  the  case  of  Pierson  v.  Dunlop,  the 
answer  did  not  contain  such  circumstances.  They  were  not 
found  in  the  letter,  but  were  entirely  extrinsic.  Nor  can  the 
court  perceive  any  reason  for  distinguishing  between  circum- 
stances which  appear  in  the  letter  containing  the  promise,  and 
those  which  are  derived  from  other  sources.  The  great  motive 
for  construing  a  promise  to  accept,  as  an  acceptance,  is,  that 
it  gives  credit  to  the  bill,  and  may  induce  a  third  person  to 
take  it.  If  the  letter  be  not  shown,  its  contents,  whatever  they 
may  be,  can  give  no  credit  to  the  bill;  and  if  it  be  shown,  an 
absolute  promise  to  accept  will  give  all  the  credit  to  the  bill  which 
a  full  confidence  that  it  will  be  accepted  can  give  it.  A  con- 
ditional promise  becomes  absolute  when  the  condition  is  per- 
formed. 

In  the  case  of  Mason  v.  Hunt  (1779)  (1  Doug.,  296  (1779)  ), 
Ld.  Mansfield  said,  "there  is  no  doubt  but  an  agreement 
to  accept  may  amount  to  an  acceptance ;  and  it  may  be  couched 


COOLIDGE   v.    PAYSON.  79 

in  such  words  as  to  put  a  third  person  in  a  better  condition 
than  the  drawee.  If  one  man,  to  give  credit  to  another,  makes 
an  absolute  promise  to  accept  his  bill,  the  drawer,  or  any  other 
person,  may  show  such  promise  upon  the  exchange  to  get 
credit ;  and  a  third  person,  who  should  advance  his  money  upon 
it,  would  have  nothing  to  do  with  the  equitable  circumstances 
which  might  subsist  between  the  drawer  and  acceptor." 

What  is  it  that  "the  drawer,  or  any  other  person,  may  show 
upon  the  exchange?"  It  is  the  promise  to  accept — the  naked 
promise.  The  motive  to  this  promise  need  not,  and  cannot  be 
examined.  The  promise  itself,  when  shown,  gives  the  credit; 
and  the  merchant  who  makes  it  is  bound  by  it. 

The  cases  cited  from  Cowper  (Cowper,  571),  and  Douglass 
are,  it  is  admitted,  cases  in  which  the  bill  is  not  taken  for  a 
pre-existing  debt,  but  is  purchased  on  the  credit  of  the  promise 
to  accept.  But  in  the  case  of  Pillans  v.  Van  Mierop,  the  credit 
was  given  before  the  promise  was  received  or  the  bill  drawn; 
and  in  all  cases  the  person  who  receives  such  a  bill  in  payment 
of  a  debt,  will  be  prevented  thereby  from  taking  other  means 
to  obtain  the  money  due  to  him.  Any  ingredient  of  fraud  would, 
unquestionably,  affect  the  whole  transaction;  but  the  mere  cir- 
cumstance, that  the  bill  was  taken  for  a  pre-existing  debt  had 
not  been  thought  sufficient  to  do  away  with  the  effect  of  a 
promise  to  accept. 

In  the  case  of  Johnson  and  another  v.  Collings  (1800)  (1  East, 
98  (1800)  ),  Ld.  Kenyon  shows  much  dissatisfaction  with  the 
previous  decisions  on  this  subject ;  but  it  is  not  believed,  that  the 
judgment  given  in  that  case  would,  even  in  England,  change 
the  law  as  previously  established. 

In  the  case  of  Johnson  v.  Collings,  the  promise  to  accept 
was  in  a  letter  to  the  drawer,  and  is  not  stated  to  have  been 
shown  to  the  indorser.  Consequently,  the  bill  does  not  appear 
to  have  been  taken  on  the  credit  of  that  promise.  It  was  a  mere 
naked  promise,  unaccompanied  with  circumstances  which  might 
give  credit  to  the  bill.  The  counsel  contended,  that  this  naked 
promise  amounted  to  an  acceptance;  but  the  court  determined 
otherwise.  In  giving  his  opinion,  Le  Blanc,  J.,  lays  down  the 
rule  in  the  words  used  by  Ld.  Mansfield,  in  the  case  of  Pierson 
v.  Dunlop. 


80  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

I.d.  Kenyon  said,  in  that  case,  that  "this  was  carrying  the 
doctrine  of  implied  acceptances  l"  the  utmost  verge  of  the  law; 
and  he  doubted  whether  it  did  qo1  even  go  beyond  it.  In 
Clarke  and  others  v.  Cock  (4  East,  57),  the  judges  again  ex- 
press their  dissatisfaction  with  the  law  as  established,  and  their 
regrel  thai  any  other  ad  than  a  written  acceptance  on  the  bill 
had  <'\vr  been  deemed  an  acceptance.  Ye\  they  do  not  under- 
take to  overrule  the  decisions  which  they  disapprove.  On  the 
contrary,  in  thai  case  (Clarke  v.  Cock),  they  unanimously  de- 
clare.I  a  letter  to  the  drawer  promising  to  accepl  the  bill,  which 
was  shown  to  the  person  who  held  it.  and  took  it  on  the  credit 
of  thai  letter,  to  be  a  virtual  acceptance.  It  is  true,  in  the  case 
of  Clarke  v.  Cock,  the  hill  was  made  before  the  promise  was 
given,  and  the  judges,  in  their  opinions,  use  some  expressions 
which  indicate  a  distinction  between  hills  drawn  before  and 
after  the  date  of  the  promse;  hut  no  case  has  been  decided  on 
this  distinction;  and  in  l'ilhins  &  Rose  v.  Van  Mierop  &  Hop- 
kins, the  letter  was  written  before  the  hill  was  drawn. 

The  court  can  perceive  no  substantial  reason  for  this  distinc- 
tion. The  prevailing  inducement  for  considering  a  promise  to 
accept,  as  an  acceptance,  is  that  credit  is  thereby  given  to  the 
bill.  Now,  this  credit  is  given  as  entirely  by  a  letter  written 
before  the  date  of  the  bill  as  by  one  written  afterwards. 

It  is  of  much  importance  to  merchants  that  this  question 
should  be  at  rest.  Upon  a  review  of  the  cases  which  are  re- 
ported, this  court  is  of  opinion,  that  a  letter  written  within  a 
reasonahle  time  before  or  after  the  date  of  a  hill  of  exchange, 
describing  it  in  terms  not  to  be  mistaken,  and  promising  to 
accept  it,  is,  if  shown  to  the  person  who  afterwards  takes  the 
bill  on  the  credit  of  the  letter,  a  verbal  acceptance  binding  the 
person  who  makes  the  promise.  This  is  such  a  case.  There  is, 
therefore,  no  error  in  the  judgment  of  the  Circuit  Court,  and 
it  is  affirmed  with  costs. 

Judgment  affirmed. 


SPAULDING    v.    ANDREWS.  81 

SPAULDING  v.  ANDREWS. 

48  Pa,  St.  411.     1864. 

Strong,  J.  The  plaintiff  in  error  was  sued  by  an  indorsee, 
upon  an  alleged  parol  acceptance  of  an  inland  bill.  The  evi- 
dence of  acceptance  was,  that  soon  after  the  bill  was  drawn 
the  payee,  who  was  then  the  holder,  presented  it  for  acceptance, 
and  received  for  answer  from  Spaulding,  the  drawee,  that  it 
was  contrary  to  his  mode  of  business  to  accept  a  draft.  When 
told  what  the  payee  wTished  to  do  with  the  bill,  and  urged  to 
accept  in  writing,  Spaulding  replied  that  it  was  not  his  cus- 
tom to  accept  in  writing,  his  word  was  as  good  as  writing,  and 
that  the  draft  wrould  undoubtedly  be  paid  at  its  maturity.  Soon 
after,  w7hen  again  applied  to  for  an  acceptance  in  writing,  he  re- 
plied: "The  draft  would  be  paid  at  maturity.  You  know 
me,  and  you  may  rely  upon  it,  the  draft  will  be  paid ;  it  will 
certainly  be  paid  at  maturity,"  adding,  "he  had  a  running  ac- 
count with  the  drawer,  and  there  would  be  funds  in  his  hands 
before  the  draft  matured."  When  first  applied  to  he  also  said 
"he  would  take  a  memorandum  of  the  draft  and  place  it  to 
the  account  of  Lambert"  (the  drawer).  After  this  evidence 
had  been  given  the  Court  permitted  the  draft  to  be  laid  before 
the  jury,  and  instructed  them,  that  if  they  believed  Spaulding 
promised  to  pay  the  draft  at  maturity  the  plaintiff  (who  be- 
came an  indorsee  after  this  alleged  parol  acceptance)  was  en- 
titled to  recover.  In  all  this  there  is  no  error  of  which  the 
plaintiff  in  error  can  complain.  That  a  parol  acceptance  of  a 
bill  is  binding  upon  the  acceptor,  in  all  cases  not  regulated  by 
statute,  is  beyond  doubt,  and  that  a  promise  to  pay  a  draft 
when  it  shall  mature  is  an  acceptance  is  equally  certain.  Nor 
can  it  be  doubted  that  the  evidence  of  acceptance  in  this  case 
was  exceedingly  strong  and  unimpeached. 

It  is  said  that  even  if  there  was  a  promise  to  pay  the  draft 
there  was  no  promise  to  Andrews,  who  obtained  it  after  the 
acceptance.  But  an  acceptance  is  a  promise  to  pay  any  one 
who  may  thereafter  become  the  holder.  And  the  legal  effect 
is  the  same,  whether  it  be  in  parol  or  in  writing.  Nor  does  it 
make  any  difference  when  a  parol  acceptance  is  given,  if  it  be 


82  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

after  the  bill  is  drawn.  It  inures  to  the  benefit  of  all  parties 
to  the  bill.  It  may  be  given  to  the  drawer  or  any  other  party 
to  the  bill,  after  it  has  been  indorsed  away,  and  even  after  it 
has  become  due  It  may  even  be  given  to  a  person  by  whose 
direction  and  on  whose  accounl  the  bill  was  drawn,  though  he 
be  no  party  to  the  bill  and  although  the  bill  had  been  pre- 
viously indorsed.  See  Byles  on  Bills,  147,  14S,  and  cases  cited, 
especially  Fairlee  v.  Herring.  3  Bink.  625.  If  a  bill  comes  into 
a  man's  hands  with  a  parol  acceptance,  though  he  does  not 
know  of  that  acceptance,  he  may  avail  himself  of  it  afterward 
when  it  comes  to  his  knowledge.  If  not,  then  he  has  not  all  the 
advantages  previous  holders  had. 

Of  course,  if  then'  was  an  acceptance  of  the  bill,  it  was  not 
a  promise  to  pay  the  debt  of  another.  The  acceptor  is  the  pri- 
mary debtor,  and  the  Statute  of  Frauds  does  not  require  his 
engagement  to  be  in  writing. 

Judgment  affirmed. 


SPEAR  v.  PRATT. 
2  Hill,  582.     1842. 

Assumpsit,  tried  at  the  Onondaga  Circuit,  in  September,  1841, 
before  Moseley,  C.  J.  The  action  was  against  the  defendant, 
Frederick  Pratt,  as  acceptor  of  a  bill  of  exchange,  payable  to 
the  order  of  the  plaintiffs.  The  defendant's  name  was  written 
across  the  face  of  the  bill;  and  the  question  was,  whether  this 
was  such  an  acceptance  as  is  required  by  the  statute.  It  was 
admitted  that  the  defendant,  at  the  time  of  the  acceptance,  was 
a  resident  of  this  State.  His  counsel  insisted  at  the  trial  that 
the  acceptance  was  insufficient  t&  charge  him.  but  the  Circuit 
Judge,  being  of  a  different  opinion,  directed  the  jury  to  find 
for  the  plaintiffs,  which  they  accordingly  did;  and  the  defen- 
dant's counsel,  having  excepted,  now  moved  for  a  new  trial  upon 
a  bill  of  exceptions. 

Cowen,  J.  Any  words  written  by  the  drawee  on  a  bill,  not 
putting  a  direct  negative  upon  its  request,  as  " accepted,"  "pre- 
sented," "seen,"  the  day  of  the  month,  or  a  direction  to  a 


SPEAR   v.    PRATT.  83 

third  person  to  pay  it,  is  prima  facie  a  complete  acceptance,  by 
the  law  merchant:  Bay  ley  on  Bills,  163,  Am.  ed.  of  1836,  and 
the  cases  there  cited.  Writing  his  name  across  the  bill,  as  in 
this  case,  is  a  still  clearer  indication  of  intent,  and  a  very  com- 
mon mode  of  acceptance.  This  is  treated  by  the  law  merchant 
as  a  written  acceptance — a  signing  by  the  drawee.  "It  may 
be,"  says  Chitty,  "merely  by  writing  the  name  at  the  bottom 
or  across  the  bill,"  and  he  mentions  this  as  among  the  more 
usual  modes  of  acceptance:  Chitty  on  Bills,  320,  Am.  ed.  of 
1839. 

It  is  supposed  that  the  rule  has  been  altered  by  1  R.  S.  757, 
2d  ed.,  §  6.  This  requires  the  acceptance  to  be  in  writing,  and 
signed  by  the  acceptor  or  his  agent.  The  acceptance  in  ques- 
tion was,  as  we  have  seen,  declared  by  the  law  merchant  to  be 
both  a  writing  and  signing.  The  statute  contains  no  declara- 
tion that  it  should  be  considered  less.  An  indorsement  must 
be  in  writing  and  signed;  yet  the  name  alone  is  constantly 
holden  to  satisfy  the  requisition.  No  particular  form  of  ex- 
pression is  necessary  in  any  contract.  The  customary  import 
of  a  word,  by  reason  of  its  appearing  in  a  particular  place 
and  standing  in  a  certain  relation,  is  considered  a  written  ex- 
pression of  intent  quite  as  full  and  effectual  as  if  pains  had 
been  taken  to  throw  it  into  the  most  labored  periphrase.  It  is 
said  the  revisers,  in  their  note,  refer  to  the  French  law  as  the 
basis  of  the  legislation  which  they  recommended;  and  that  the 
French  law  requires  more  than  the  drawee's  name — the  word 
accepted  at  least.  That  may  be  so ;  but  it  is  enough  for  us  to 
see  that  both  the  terms  and  the  spirit  of  the  Act  may  be  satisfied 
short  of  that  word,  and  more  in  accordance  with  the  settled 
forms  of  commercial  instruments  in  analogous  cases.  The  whole 
purpose  was  probably  to  obviate  the  inconveniences  of  the  old 
law,  which  gave  effect  to  a  parol  acceptance. 

New  trial  denied. 


84  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

3.    Accepiana   May  l><   Implied. 

BOUGB  \.  LORING. 
Pick.  254.     1837. 

Assumpsil  mi  ;m  order  or  drafl  for  the  sum  of  $50,  dated 
New  York,  April  3,  L834,  drawn  by  Eliza  Wooleutt  on  the  de- 
fendant, in  favor  of  the  plaintiff. 

Al  ilic  trial  in  the  Courl  of  Common  Pleas,  before  Strong, 
J.,  it  was  proved  by  the  deposition  of  \Y.  \V.  Morse,  that  the 
draft  was  senl  to  Boston  to  be  collected,  while  the  defendant  was 
absenl  on  a  journey  to  New  York;  that  the  witness,  who  said  he 
was  the  agenl  of  the  plaintiff,  informed  the  defendant  in  New 
York  that  the  draft  had  been  made  and  sent  to  Massachusetts, 
and  produced  to  the  defendant  a  discharge  from  the  draft  and 
requested  him  to  pay  it;  that  the  defendant  looked  at  the  dis- 
charge, and  replied  that  "he  would  rather  pay  it  in  the  regular 
way,  when  presented,"  and  that  "he  would  meet  it  at  the  Con- 
cord Bank,  or  pay  to  any  person  who  should  present  it;"  that 
the  defendant  returned  home,  and  soon  afterward  the  draft  was 
sent  hack  from  .Massachusetts;  that  the  plaintiff  then  gave  the 
draft  to  the  witness  with  his  name  indorsed  thereon,  and  re- 
quested him  to  enclose  it  to  the  defendant  and  to  ask  him  to  send 
a  fifty-dollar  bill  by  mail;  that  the  witness  did  so,  by  a  letter 
dated  April  15,  1834,  but  received  no  answer ;  and  that  he  after- 
ward  wrote  to  the  defendant  again  and  again  on  the  subject, 
without   receiving  any  reply. 

By  the  deposition  of  Henry  Hutchinson  it  appeared  that  the 
deponent  received  at  New  York  a  letter  from  the  defendant, 
dated  May  26,  1834,  in  which  was  the  following  clause:  "I 
received  an  order  from  Mr.  Morse,  drawn  by  Eliza  for  fifty 
dollars,  which  will  he  disposed  of  some  way  or  other  when  I  am 
there." 

The  Judge  ruled  that  this  evidence  proved  a  conditional  ac- 
ceptance of  the  order  by  the  defendant,  hut  that  it  did  not  ap- 
pear from  the  evidence  thai  the  condition  had  been  complied 
with  by  the  plaintiff;  and  he  instructed  the  jury  that  if  they 
believed  the  witnesses,  they  must  find  for  the  defendant. 

THe  jury  returned  a  verdict  for  the  defendant. 


HOUGH    v.    LORING.  85 

The  plaintiff  excepted  to  the  instruction,  that  it  did  not  ap- 
pear from  the  testimony  that  the  condition  on  which  the  order 
was  accepted  had  been  complied  with. 

Putnam,  J.  Taking-  it  to  be  true  that  this  was  originally  a 
conditional  acceptance,  and  that  the  condition  was  not  per- 
formed, yet  there  are  other  facts  proved  in  the  case  upon  which 
the  jury  might  have  found  a  verdict  for  the  plaintiff.  If  the 
condition  were  waived  and  an  absolute  acceptance  were  made 
after  the  conditional  one,  it  is  very  clear  that  the  subsequent 
absolute  acceptance  should  bind  the  defendant  to  pay  the  bill. 

The  defendant  originally  refused  to  accept  a  discharge  of  the 
bill,  which  was  executed  by  the  plaintiff;  but  said  "he  would 
rather  pay  it  in  the  regular  way  when  presented,"  and  that  "he 
would  meet  it  at  the  Concord  Bank,  or  pay  to  any  person  who 
should  present  it."  He  did  not  mean  to  trust  to  the  discharge 
which  was  produced ;  but  he  meant  to  take  up  the  draft,  to  have 
the  draft  in  his  own  possession,  before  he  paid  it. 

Well,  the  plaintiff  afterward  sent  the  draft,  indorsed  by  him, 
on  the  15th  of  April,  1834,  in  a  letter  addressed  to  the  defendant, 
which  the  defendant  received.  Upon  the  receipt  of  that  letter 
and  draft,  the  defendant  might  have  insisted,  if  he  had  pleased, 
upon  the  performance  of  the  strict  terms  of  the  condition,  viz., 
that  some  person  should  come  and  present  it  and  give  it  up,  upon 
payment;  or  he  might  consider  the  sending  the  draft  with  a 
blank  indorsement  as  a  presentation ;  and  having  the  draft  itself 
so  indorsed,  he  might  intend  to  accept  and  pay  it.  If  he  intended 
to  insist  upon  the  original  terms,  he  was  bound  to  answer  the  let- 
ter of  the  15th  of  April  in  a  reasonable  time,  to  the  end  that  the 
plaintiff,  the  holder  of  the  bill,  might  take  his  further  remedy, 
by  complying  literally  with  the  condition  originally  proposed. 
He  was  requested  to  send  the  fifty-dollar  bill  by  the  mail  in 
payment.  He  might  have  answered  that  he  would  do  no  such 
thing,  but  that  if  the  holder  would  authorize  any  person  to  come 
to  him  and  receive  the  money,  he  would  pay  it,  and  in  the  mean- 
time hold  the  draft,  for  the  use  of  the  holder.  But  he  did  not 
take  such  a  course.  On  the  contrary,  he  kept  the  bill,  and  the 
money  also,  and  refused  to  answer  the  repeated  letters  of  the 
agent  of  the  plaintiff  upon  the  subject.  He  has  retained  the 
draft  and  the  money  ever  since.    But  on  the  26th  of  May,  1834, 


86      ACCEPTANCE  AND  TRANSFER  CONSIDERED. 

he  acknowledged  by  his  Letter  that  he  had  received  the  order 
drawn  by  Eliza  (the  drawer)  for  $50,  "which  will  be  disposed 
of  some  way  or  other  when  I  am  there."  Now  he  makes  no 
objection  as  to  the  want  of  a  due  and  regular  presentation  or 
acceptance  of  the  draft;  but,  on  the  contrary,  agrees  to  make 
some  disposition,  which  may  fairly  mean  to  pay  the  same  when 
he  should  be  at  New  York.  Now  if  there  was  a  waiver  of  the 
original  condition,  and  such  consent  afterward  as  amounted  to 
a  presentation  and  acceptance,  it  renders  the  acceptor  liable; 
and  it  is  not  for  him  afterward  to  postpone  the  payment,  or 
make  any  terms  when  or  where  he  will  pay.  He  became  liable 
to  pay  as  upon  an  absolute  acceptance.  Thus,  in  Chitty  on 
Bills  (Story's  ed.  147)  it  is  stated  that  an  acceptance  may  be 
implied  as  well  as  express.  It  may  be  implied  and  inferred  from 
the  drawee's  keeping  the  bill  a  great  length  of  time,  or  by  any 
other  act  which  gives  credit  to  the  bill,  and  induces  the  holder 
not  to  protest  it  and  induces  him  to  consider  it  as  accepted: 
Clavey  v.  Dolbin.  Cas.  temp.  Hardw.  278;  Harvey  v.  Martin,  1 
Campb.  425. 

Now,  here  the  holder  had  no  reason  to  suppose  that  the  bill 
was  not  accepted,  as  it  was  retained  by  the  defendant  in  the 
manner  stated.  We  all  think  that  the  facts,  whether  the  defend- 
ant waived  the  condition  originally  made,  and  whether  he  did 
not  so  conduct  himself  afterward  as  should  by  implication  bind 
him  as  an  absolute  acceptor  of  the  draft,  were  proper  to  be  left 
to  the  jury.  The  jury  might  well  infer  an  absolute  acceptance 
from  the  facts  disclosed  in  this  report,  if  not  contradicted  or 
explained  by  other  evidence.  If  there  were  such  an  implied 
acceptance,  it  could  not  be  recalled:  Thornton  v.  Dick,  4  Esp. 
R.  272. 

We  are  all  of  opinion  that  the  verdict  should  be  set  aside  and 
a  new  trial  be  had  at  the  bar  of  this  Court. 


PETIT   v.    BENSON.  87 

4.  Tlie  Holder  is  Entitled  to  an  Absolute  and  Unconditional 
Acceptance,  But  May  Accept  Less  and  It  Will  be  Binding  on 
the  Drawer. 

PETIT  v.  BENSON. 

Comberbach,  452.     1679. 

A  bill  was  drawn  upon  the  defendant,  who  accepted  it  by  in- 
dorsement, in  this  manner:  "I  do  accept  this  bill  to  be  paid, 
half  in  money  and  half  in  bills. ' '  And  the  question  was,  whether 
there  could  be  a  qualification  of  an  acceptance ;  for  it  was  alleged 
that  this  writing  upon  the  bill  was  sufficient  to  charge  him  with 
the  whole  sum.  But  it  was  proved  by  divers  merchants  that  the 
custom  among  them  was  quite  otherwise,  and  that  there  might 
be  a  qualification  of  an  acceptance;  for  he  that  may  refuse  the 
bill  totally,  may  accept  it  in  part.  But  he  to  whom  the  bill  is  due 
may  refuse  such  acceptance,  and  protest  it  so  as  to  charge  the 
first  drawer;  and  though  there  be  an  acceptance,  yet  after  that 
he  hath  the  same  liberty  of  charging  the  first  drawer  as  he  before 
had. 


Acceptances  for  Honor,  or  Supra  Protest* 

HOARE  ET  AL.  v.  CAZENOVE  ET  AL. 

16  East's  Rep.,  391.     1812. 

In  an  action  by  the  indorsees  of  the  bill  of  exchange  herein- 
after set  forth  against  the  acceptors,  the  declaration  contained 
the  usual  averments  (the  1st  count  averring  that  the  bill  was 
presented  for  payment  to  the  drawees  and  refused,  the  2d  count 
omitting  that  averment),  and  charged  that  the  bill  having  been 
refused  acceptance  by  the  drawees,  and  being  thereupon  duly 
protested  for  non-acceptance,  the  defendants,  having  notice 
thereof,  accepted  the  bill  for  the  honor  of  the  first  indorsers. 
The  defendants  pleaded  the  general  issue ;  and  at  the  trial  before 
Ld.  Ellenborough,  Ch.  J.  (1811),  a  verdict  was  found  for  the 
plaintiffs  for  8161.,  subject  to  the  opinion  of  the  court  on  the 
following  case. 

The  bill  of  exchange  stated  in  the  declaration  was  drawn  by 

*  See  Sec.  800,  Vol.  6,  Cyclopedia  of  Law. 


88  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

S.  Banbury  at  Bamburgh,  on  the  23d  of  July,  1810,  upon  Perm 
and  II;ui!uiry  <>f  London,  in  Livor  of  Quevremoni  Balleydier  & 
Co.,  for  miii/.  sterling,  a1   L30  days  after  date.     It  was  specially 
indorsed  by  Quevremoni  Balleydier  &  Co.,  to  Perier  Freresjby 
them  to  F.  Farmbacher,  all  of  whom  reside  abroad;  by  P.  Farm- 
bacher  to  Greffuhle,  Freres  &  Co.,  who  reside  hue;  and  by  the 
latter  to  the  plaintiffs,  who  are  hankers  in  London.    The  first  of 
the  set  of  hills  was  transmitted,  with  the  first  special  indorsement 
only,  to  the  defendants,  to  procure  acceptance:  and  they  accord- 
ingly presented  it  for  acceptance  to  Penn  &  Banbury,  who  re- 
fused; whereupon  the  defendants  caused  a  protest  to  be  duly 
made   for  Qon-acceptance.     The  second  of  the  set  of  hills  was 
afterwards  transmitted,   indorsed  so  as  to  pass  the  property  of 
Greffuhle,  Preres  &  Co.,  with  a  reference  upon  the  face  of  the 
bill  to  the  defendants  in  the  case  of  need.     Greffuhle,  Preres  & 
Co.  applied  to  the  defendants  \'<>v  the  first  bill,  and  to  know  if 
it  had  been  accepted:  upon  which  the  defendants  delivered  the 
first  bill  to  them  with  the   following  acceptance  by  themselves: 
"accepted  under  protest  for  the  honor  of  the  first  indorsers." 
The  bill  became  due  on  the  3d  of  December,  1810,  but  was  not 
presented  to  the  drawees,  Penn  &  Banbury,   for  payment;  nor 
was   it  proved  to  have  been  protested  for  non-payment.     The 
defendants  refused  to  pay  the  bill,  in  consequence  of  orders  from 
the  first  indorsers.     If  the  plaintiffs  were  entitled  to  recover,  the 
verdict  was  to  stand;  if  not,  a  non-suit  was  to  be  entered.     This 
case  was  argued  in  1811,  and  the  court  reserved  it  for  further 
consideration. 

Ld.  Ellenborough,  Ch.  J.,  delivered  the  judgment. 

This  was  an  action  founded  upon  a  set  of  hills  of  exchange 
for  800L,  accepted  by  the  defendants  for  the  honor  of  the  first 
indorsers.  The  set  was  drawn  by  Samuel  Hanbury  at  Bam- 
burgh, 23d  July,  1810,  upon  Penn  &  Banbury  of  London,  and 
was  payable  to  Quevremont  Balleydier  &  Co.,  at  130  days  after 
date.  The  first  of  the  set  was  transmitted  to  the  defendants, 
that  they  might  procure  acceptance,  but  Penn  &  Banbury  re- 
fused to  accept,  and  the  defendants  caused  it  to  be  protested  for 
non-acceptance.  The  second  of  the  set  was  indorsed  to  Greffuhle, 
Preres  &  Co.;  they  applied  it  to  the  defendants  for  the  first,  and 
the  defendants  delivered   to   them   fhe  first,  accepted  by  them- 


HOARE    v.    CAZENOVE.  89 

selves,  for  the  honor  of  the  first  indorsers,  that  is  to  say,  Quevre- 
mont  Balleydier  &  Co.  The  bill  became  due  the  3d  of  December, 
1810,  but  was  not  presented  to  Penn  &  Hanbury,  the  drawees, 
for  payment  at  maturity,  nor  protested  for  non-payment.  In 
the  first  count  it  was  stated,  contrary  to  the  fact,  that  it  was 
presented  to  the  drawees  for  payment,  and  refused :  in  the  sec- 
ond count  this  averment  was  wholly  omitted.  The  defendants 
(in  consequence  of  orders  from  the  first  indorsers),  refused  to 
pay  it. 

The  question,  in  this  case,  is,  whether  a  presentment  to  the 
drawees,  Penn  &  Hanbury,  for  payment  at  maturity,  and  a  pro- 
test for  non-payment  by  them  is,  or  is  not  essential  as  a  previous 
requisite  to  the  maintaining  an  action  against  these  defendants, 
the  acceptors  for  the  honor  of  the  first  indorsers;  and  this  de- 
pends upon  the  nature  and  obligation  of  an  acceptance  for  the 
honor  of  the  drawer  or  indorser.  If  an  acceptance  in  these  terms 
be  an  engagement  by  the  person  giving  it,  that  he  will  pay  the 
bill  when  it  becomes  due.  and  entitles  the  holder  to  look  to  him  in 
the  first  instance,  without  a  previous  resort  to  any  person,  the 
plaintiffs  are  in  that  case  entitled  to  recover  upon  their  second 
count ;  but  if  such  an  acceptance  be  in  its  nature  qualified,  and 
amount  to  a  collateral  engagement  only,  i.  e.,  an  undertaking  to 
pay  if  the  original  drawee,  upon  a  presentment  to  him  for  pay- 
ment, should  persist  in  dishonoring  this  bill,  and  such  dishonor 
by  him  should  be  notified,  by  protest,  to  the  person  who  has 
accepted,  for  the  honor  of  the  indorser,  then  the  necessary  steps 
have  not  been  taken  upon  this  bill,  and  the  plaintiffs  cannot  re- 
cover. And  such,  after  much  consideration,  we  are  of  opinion  is 
the  case. 

It  is  remarkable  that  no  directly  adjudged  case  upon  this 
question  is  to  be  found ;  although  the  custom  of  merchants  rela- 
tive to  this  subject,  is  stated  in  the  case  of  Brunetti  v.  Lewin, 
1  Lutw.,  896  (1781),  in  K.  B.,  affirmed  in  error  in  the  Ex- 
chequer Chamber,  in  favor  of  the  original  plaintiff,  Brunetti. 
Lutwytch,  in  his  report,  says  that  he  could  not  discover  that 
any  exception  was  taken  to  the  validity  of  the  custom,  which  he 
states  as  shortly  this,  "that  if  any  merchant  (for  the  honor  of 
him  to  whom  a  foreign  bill  of  exchange  was  first  payable,  and 
who  had  first  indorsed  the  bill  to  another)   shall  pay  the  said 


ACCEPTANCE  AND  TRANSFER  CONSIDERED. 

bill  to  the  last  indorsee  of  it,  the  bill  being  before  then  protested 
for  non-payment,  thru  the  merchant  to  whom  the  bill  was  first 
payable,  and  who  first  indorsed  the  bill,  shall  have  an  action 
againsl  the  merchanl  who  firsl  took  upon  himself  the  obligation 
to  pay  the  bill  Eor  the  honor  of  the  drawer  (the  bill  having  been 
first  protested  likewise  i'or  non-acceptance,  Eor  value  of  the  bill 
and  all  charges). " 

Thus  two  protests,  i.  e.,  Eor  non-payment  as  well  as  non- 
acceptance  were  in  this  case  held  necessary  by  the  custom  of 
merchants.  The  immediate  poinl  argued  in  error  appears  to 
have  been  whether  it  was  sufficiently  shown,  agreeably  to  the 
custom  alleged,  that  payment  was,  in  that  case,  in  fact  made 
to  the  last  indorsee,  so  as  to  found  the  claim  of  the  first  indorser, 
to  payment  to  be  made  by  the  acceptor  for  honor,  with  the  terms 
of  the  custom;  but  it  certainly  was  also  open  to  the  plaintiff  in 
error,  to  have  insisted  upon  the  validity  of  any  part  of  the 
custom  alleged;  of  which  custom  the  protest  for  non-payment 
previously  to  the  payment  to  the  indorsee,  and  the  subsequent 
claim  upon'the  acceptor  for  honor,  was  a  material  part.  In  that 
case  the  undertaking  for  the  honor  of  the  drawer  was  not  in  the 
form  of  an  acceptance  upon  the  bill,  but  of  "a  note  in  writing 
Eor  the  honor  of  the  drawer  to  pay  the  bill  upon  return;"  but 
this,  "according  to  Pothier  on  Bills  of  Exchange"  I  1  Des  Avals), 
is  a  mode  substituted  by  "recent  usage  in  the  place  of  a  signature 
by  the  person  giving  the  caution  on  the  bill  itself;"  and  though 
the  mode  be  different,  the  effect  is  for  all  substantial  purposes 
the  same. 

Malyne,  p.  273,  in  his  5th  observation,  says  (speaking  of  the 
acceptor  for  the  honor  of  the  bill,  whom  he  had  just  mentioned 
in  his  Eoregoing  observation),  "if  this  man  at  the  time  doth 
pay  fhe  said  bill,  because  the  party  upon  whom  it  was  directed 
doth  not,  yet  he  is  to  first  make,  before  he  doth  pay  the  same,  a 
protest,  with  a  declaration  that  he  hath  paid  the  same  for  the 
honor  of  the  bill  of  exchange,  whereby  to  receive  the  money  again 
of  him  that  hath  made  the  bill  of  exchange.  But  it  may  be  said 
that  according  1<>  this  position  in  Malyne.  though  a  protest  may 
be  necessary  to  be  made  against  the  drawee  by  the  acceptor  for 
honor,  to  entitle  him  to  recover  against  the  party  for  whose  honor 
he  has  accepted,  yet  that  such  protest  for  non-payment  is  not 


HOARE    v.    CAZENOVE.  91 

equally  necessary  to  be  made  against  the  drawee,  to  enable  any 
other  holder  to  recover  against  the  acceptor  for  honor  himself. 

But  the  next  observation,  in  same  page  of  Malyne,  lays  down 
the  obligation  more  generally,  and  as  attaching  upon  every  holder 
of  a  bill  (whether  accepted,  or  not  accepted,  in  whose  hands  it 
remains  unpaid,  up  to  the  time  of  the  appointed  payment),  the 
duty  of  making  a  protest  for  the  non-payment  of  it.  His  words 
are  these :  "  If  a  bill  of  exchange  be  accepted,  and  nevertheless 
not  paid,  and  that  it  be  not  accepted,  as  aforesaid,  and  remaineth 
unpaid,  then  must  you  cause  the  notary  to  make  a  second  protest 
(assuming  that  the  bill  had  been  already  protested  for  non- 
acceptance)  for  the  non-payment  of  it." 

Pothier  said :  "When  after  a  protest  made  for  want  of  accep- 
tance on  the  part  of  him  upon  whom  the  bill  is  drawn,  a  third 
person  has  intervened,  and  has  accepted  the  bill  for  the  honor 
of  the  drawer,  or  some  indorser,  all  agree  that  at  the  expiration 
of  the  time  of  grace,  the  protest  ought  to  be  made  not  only  to 
him  upon  whom  the  bill  is  drawn,  and  who  has  refused  to  accept 
it,  but  to  the  third  person,  who  has  accepted  it  for  honor."  I 
am  aware  that  Beawes  in  his  Lex  Mercatoria,  p.  421  s.  43,  says, 
"He  that  accepts  a  bill  upon  protest,  puts  himself  absolutely  in 
the  stead  of  the  first  acceptant,  and  is  obliged  to  make  the  pay- 
ment without  any  exception,  and  the  possessor  (i.  e.,  the  holder) 
hath  the  same  right  and  law  against  such  an  acceptor  as  he 
would  have  had  against  the  first  intended  one,  if  he  had  ac- 
cepted." The  literal  sense  of  these  words  certainly  seems  to 
place  this  writer  at  variance  with  the  authorities  above  cited; 
and  if  that  were  necessarily  the  case,  one  would  not  be  disposed 
very  readily  to  surrender  the  custom  of  merchants,  as  alleged  on 
record,  and  not  questioned  in  error  in  the  case  of  Brunetti  v. 
Lewin  (1  Lutw.,  896),  and  the  positions  which  are  to  be  found 
in  Malyne  and  Pothier  (the  latter,  a  most  learned  and  eminent 
writer  upon  every  subject  connected  with  the  law  of  contracts, 
and  intimately  acquainted  with  the  law  merchant  in  particular). 

The  use  and  convenience,  and,  indeed,  the  necessity  of  a  pro- 
test upon  foreign  bills  of  exchange,  in  order  to  prove,  in  many 
eases,  the  regularity  of  the  proceedings  thereupon,  is  too  obvious 
to  warrant  us  in  dispensing  with  such  an  instrument  in  any  case 
where  the  custom  of  merchants,  as  reported  in  the  authorities 


92      ACCEPTANCE  AND  TRANSFER  CONSIDERED. 

of  law,  appeal's  in  have  required  it.  And,  indeed,  the  reason  of 
tlie  thing,  as  well  as  the  strict  law  of  the  case,  seems  to  render 
a  second  resorl  to  the  drawee  proper,  when  the  unaccepted  bill 
still  remains  with  the  holder;  for  effects  often  reach  the  drawee, 
who  has  refused  acceptance  in  the  first  instance,  out  of  which 
the  bill  may  and  would  be  satisfied,  if  presented  to  him  again 

when  the  period  of  paymenl  had  arrived.  And  the  drawer  is 
entitled  to  the  chance  of  benefit  to  arise  from  such  second  de- 
mand, or  at  any  rate  to  the  benefit  of  that  evidence  which  the  pro- 
test affords,  thai  the  demand  has  been  made  duly  without  effect, 
as  far  as  such  evidence  may  be  available  to  him  for  purposes 
of  ulterior  resort.  Upon  the  whole,  therefore,  we  are  of  opinion 
that  the  posh  a  must  be  delivered  to  the  defendants. 


Transfer  of  Bills  and  Notes — Methods  and  Effect  Thereof  * — By 

D<  lie*  ry. 

CURTIS  v.  SPRAGUE. 
51  Cat.  239.     1876. 

Appeal  from  the  District  Court,  First  Judicial  District,  County 
of  Santa  Barbara. 

January  1!),  1865,  the  defendant,  Thomas  Sprague,  made,  exe- 
cuted, and  delivered  his  promissory  note  to  the  plaintiff,  Den- 
nis, in  the  words  and  figures  following,  to  wit: 

"$2400.  "January  19,  1865. 

"On  the  1st  of  November,  proximo,  I  promise  to  pay  to 
Thomas  Dennis,  or  order,  two  thousand  four  hundred  dollars, 
for  value  received,  in  United  States  gold  coin,  with  interest  at 
the  rate  of  one  and  one-half  per  cent,  per  month. 

' '  Thomas  Sprague.  ' ' 

At  the  time  of  the  making  and  delivery  of  the  note,  the  de- 
fendant Iluse  guaranteed  its  payment  by  indorsing  the  same. 
When  the  note  fell  due,  Dennis  failed  to  make  demand  of  pay- 


*See  Sees.  802-813,   Vol.  G,  Cyclopedia  of  Law. 


CURTIS  v.  SPRAGUE.  93 

ment  and  give  notice  of  non-payment.  Afterward,  and  about 
the  month  of  September,  1866,  Huse  made  a  payment  on  the 
note,  and  said  to  the  payee :  ' '  Mr.  Dennis,  I  am  responsible  for 
that  note."  Dennis  after  this  indorsed  the  note  in  blank,  and 
delivered  it  to  F.  Maguire.  Subsequently,  Maguire  assigned  the 
note  to  Dennis  by  indorsement,  without  recourse,  and  redelivered 
the  same  to  him.  Afterward,  Dennis  delivered  the  note  to  the 
plaintiff,  Curtis,  without  receiving  any  value,  but  with  an  agree- 
ment that  Curtis  should  bring  suit  and  divide  with  him  what  he 
recovered.  The  plaintiff  recovered  judgment,  and  the  defendant 
appealed. 

By  the  Court:  1.  The  statement  made  by  Huse,  the  guar- 
antor, to  Dennis,  the  payee,  after  the  maturity  of  the  note,  that 
"I  am  responsible  for  that  note,"  is,  in  substance,  a  promise 
to  pay  it.  It  is  clear  from  the  evidence  that  he  then  had  full 
knowledge  of  the  laches  of  the  holder,  in  failing  to  demand  pay- 
ment of  the  maker,  on  the  day  the  note  matured ;  and  it  is  well 
settled  that  a  promise  by  an  indorser  or  guarantor,  after  matu- 
rity, to  pay  the  note,  with  notice  of  the  laches,  dispenses  with  the 
necessity  of  proving  demand  and  notice:  Keyes  v.  Fenster- 
maker,  24  Cal.  333;  Sigerson  v.  Matthews,  20  How.  496.  The 
Court  below,  therefore,  properly  held  that  Huse  was  not  re- 
leased by  a  failure  of  the  plaintiff  to  prove  demand  and  notice. 

2.  There  was  no  error  in  the  refusal  of  the  Court  below  to 
non-suit  the  plaintiff  on  the  motion  of  the  defendants.  When 
the  note  was  delivered  to  Curtis,  it  had  on  the  back  the  blank 
indorsement  of  Dennis,  the  payee ;  and  ' '  the  first  effect  of  an 
indorsement  in  blank,  is  to  make  the  paper  payable,  not  to  the 
transferee  as  indorsee,  but  as  bearer:"  2  Parsons  on  Notes  and 
Bills,  19.  Curtis,  therefore,  acquired  the  legal  title  to  the  note, 
with  a  corresponding  right  of  action,  when  it  was  delivered  to 
him  by  the  payee,  indorsed  in  blank.  We  attribute  no  impor- 
tance to  the  fact  that  the  note  had  before  been  delivered  by 
Dennis  with  the  blank  indorsement  to  Maguire,  and  that  the 
latter  had  redelivered  it  to  Dennis,  with  a  special  assignment. 
The  title  would  have  been  as  effectually  reinvested  in  Dennis 
by  merely  delivery,  without  the  assignment,  as  with  it ;  and 
when  Dennis  afterward  delivered  the  note  to  Curtis,  there  was 
no  need  that  he  should  again  indorse  it  in  blank,  in  order  to 


94  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

convey  the  legal  title,  as  the  blank  indorsemenl  already  on  it 
was  effed  iial  for  thai  purpose. 

3.  The  legal  title  and  righl  of  art  ion  being  wholly  in  Curtis, 
the  Court  erred  in  permitting  Dennis  to  be  joined  as  a  co- 
plaintiff.  Bui  ii  was  an  error  which  has  wrought  no  substan- 
tial injury  to  the  defendants.  Nevertheless,  in  order  to  preserve 
a  proper  consistency  in  the  record,  we  deem  it  better  to  remand 
the  cans,'  for  further  proceedings. 

It  is  therefore  ordered  that  the  judgment  be  reversed  and  the 
cause  remanded,  with  an  order  to  the  Court  below  to  vacate  the 
order  allowing  Dennis  to  be  joined  as  a  co-plaintiff,  and  to  enter 
a  judgment  on  the  findings  in  favor  of  the  plaintiff  Curtis. 


By  Indorsement. 

FRENCH  v.  TURNER, 
15  Indiana,  59.     1860. 

The  first  count  states  in  substance,  that  on  November  6,  1852, 
one  John  Bodle  executed  and  delivered  to  Abel  C.  Pepper,  a 
mortgage  on  certain  land,  therein  described,  to  secure  the  pay- 
ment of  $1,100,  evidenced  by  ten  promissory  notes  of  that  date, 
each  for  $110 ;  one  payable  in  a  year  from  date,  and  one  maturing 
each  year  thereafter  until  they  all  become  due,  with  interest  pay- 
able annually.  That  in  September,  1854,  Pepper  assigned  and 
transferred  the  mortgage  and  notes,  by  indorsement  on  the 
mortgage,  to  the  defendant,  Turner.  That  Turner,  in  January, 
1858,  for  value  received,  transferred  the  mortgage  and  notes  to 
the  plaintiff,  by  indorsement  in  writing  on  the  mortgage.  The 
mortgage  and  notes,  together  with  the  assignment,  are  set  out. 
The  assignment  from  Turner  to  the  plaintiff,  on  the  mortgau'.  is 
as  follows,  viz. : 

"For  value  received,  I  hereby  assign  the  within  mortgage  and 
notes,  therein  described,  to  John  J.  French. 
"January  2,  1858.  (Signed)  Moses  Turner." 

It  is  averred  that  the  note  which  became  due  on  November  f>, 
1858,  and  the  interest  on  the  other  not  due,  remain  due  and  un- 
paid.    That,  for  the  notes  wdiich  matured  before  November  6, 


FRENCH   v.    TURNER.  95 

1858,  he  foreclosed  the  mortgage  and  the  mortgaged  premises 
were  sold  for  $600  being  fifty  dollars  less  than  the  amount  of 
the  judgment,  interest  and  cost.  That  Bodle,  at  the  time  of  the 
execution  of  the  notes  and  mortgage,  had  no  property  subject  to 
the  execution  except  the  mortgaged  premises,  nor  did  he  have  at 
the  time  of  the  maturity  of  any  of  the  notes.  That  he  is  still 
wholly  and  notoriously  insolvent,  having  no  property  subject  to 
execution,  and  that  an  action  against  him  would  be  unavailing, 
wherefore,  etc. 

The  second  count  alleges,  that  the  defendant,  professing  to  be 
the  holder  of  the  ten  promissory  notes  (described  in  the  first 
count),  secured  by  the  mortgage  on,  etc.,  for  value  received,  sold 
the  said  ten  promissory  notes  to  the  plaintiff,  by  indorsement  on 
the  mortgage  (as  in  the  first  count)  ;  and  that  before  the  said 
assignment,  the  defendant  received  full  payment  and  satisfac- 
tion of  the  first  of  said  series  of  promissory  notes,  to-wit:  the 
one  payable  on  November  6,  1853,  and  all  interest  thereon,  from 
the  said  Bodle,  which  interest  at  the  time  of  the  assignment 
amounted  to  $30,  making,  of  principal  and  interest  on  the  note, 
at  the  time  of  the  assignment,  $140,  which  the  defendant  refuses 
to  pay. 

The  third  count  alleges,  that  "the  defendant  professing  to  be 
the  holder  of  the  ten  promissory  notes  and  mortgage,  and  that 
the  payment  of  the  notes  was  secured  by  the  mortgage,  induced 
the  plaintiff  to  purchase  the  same  for  a  valuable  consideration, 
fully  equal  to  the  principal  sum  mentioned  in  the  notes  and  in- 
terest accrued  thereon ;  and  thereupon  the  defendant,  in  pursu- 
ance of  said  sale,  by  an  instrument  in  writing  indorsed  on  the 
said  mortgage,  assigned  the  notes  and  mortgage  to  the  plaintiff. 
That  at  the  same  time  the  defendant,  by  an  instrument  in  writ- 
ing, executed  contemporaneously  with  the  assignment,  cove- 
nanted and  agreed  with  the  plaintiff  that  the  notes  were  secured 
by  mortgage.  And  in  consideration  that  the  plaintiff  would  re- 
ceive the  notes  without  indorsement,  the  defendant  then  and 
there  agreed  by  parol,  and  undertook  and  promised  the  plain- 
tiff, that  if  he  could  not  collect  the  same  from  Bodle,  the  defend- 
ant would  pay  the  plaintiff  the  sum  of  money  mentioned  in  the 
notes.  The  foreclosure  of  the  mortgage ;  the  insufficiency  of  the 
mortgaged  premises  to  pay  the  debt;  the  insolvency  of  Bodle, 


96      ACCEPTANCE  AND  TRANSFER  CONSIDERED. 

and  thai  the  aote  due  November  6,  1858,  with  the  interest 
thereon,  remains  due  and  unpaid,  are  averred,  substantially  as 
in  the  first  count. 

Per  Curiam. — The  firsl  count  is  evidently  based  upon  the 
supposition  thai  the  defendant  is  Liable  as  an  indorser  of  the 
notes.  This,  however,  is  not  the  ease.  In  order  to  render  him 
thus  liable,  the  indorsemenl  of  the  notes  must  have  been  made 
"thereon"  I  1  K.  S.,  L852,  p.  378),  or  perhaps,  "on  another  paper 
annexed  thereto  (called  in  French  Allong(  I,  which  is  sometimes 
necessary  when  there  are  many  successive  indorsements  to  be 
made."  (Story  on  Bills,  §  204.  See  also  Rex  v.  Bigg,  1  Strange, 
18;  Ainot  v.  Symonds,  85  Pa.  St.,  99;  Moxon  v.  Pulling,  4 
Camp.,  50;  Young  v.  Glover,  3  Jurist,  (N.  S.),  637;  Badgley  v. 
Votrain,  08  111.,  25.) 

The  indorsement  in  question,  made  upon  the  mortgage,  refers 
to  the  notes  as  being  therein  described,  and  is  not  upon  the  notes, 
or  upon  any  paper  attached  to  them.  Such  an  assignment  could 
not  operate  to  transfer  the  legal  title  to  the  notes.  It  would  con- 
vey an  equitable  title,  authorizing  the  assignee,  under  our  code, 
to  sue  thereon  in  his  own  name,  but  it  does  not  place  the  as- 
signor in  the  condition  of  a  legal  indorser.  By  such  an  assign- 
ment, the  assignor  does  not  warrant  the  solvency  of  the  maker  of 
the  notes.  It  is  no  more  effectual  for  that  purpose  than  a  parol 
assignment  would  be,  an  assignment  made  by  the  delivery  of  the 
notes.  The  case  is  analogous  to  the  transfer  of  a  bill  payable 
to  bearer,  by  delivery.  "If  it  is  payable  to  the  hearer,  then  it 
may  he  transferred  by  mere  delivery.  But,  although  it  may  be 
thus  transferred  by  mere  delivery,  there  is  nothing  in  the  law 
which  prevents  the  payee  of  a  bill,  payable  to  himself  or  bearer, 
from  transferring  it,  if  he  chooses,  by  indorsement.  In  such  a 
ease,  he  will  incur  the  ordinary  liability  of  an  indorser,  from 
which,  in  the  ease  of  a  mere  transfer  by  delivery,  he  is  ordinarily 
exempt.  On  the  transfer  of  a  bill,  payable  to  the  bearer,  by 
delivery  only,  without  indorsement,  the  person  making  the  trans- 
fer to  be  deemed  a  party  to  the  bill;  although  he  may  in  some 
cases  incur  a  limited  responsibility  to  the  person  to  whom  he 
immediately  transfers  it,  founded  upon  particular  circumstances, 
as,  for  example,  upon  his  express  or  implied  guaranty  of  its 
genuineness  inu\  his  title  thereto.     Story  on  Bills,  §  200. 


FRENCH   v.    TURNER.  97 

The  defendant  not  being  liable  upon  the  notes  as  indorser 
thereof  it  follows,  that  the  first  count  is  bad,  and  the  demurrer 
thereto  was  properly  sustained. 

The  second  count  we  also  deem  defective.  Admitting  that  the 
defendant  impliedly  warranted  that  the  note  thus  transferred 
had  not  been  paid  to  him,  which  would  seem  to  be  the  case,  still 
he  is  not  liable  on  the  contract  of  assignment.  The  plaintiff 
could  only  sue  to  recover  what  he  paid  for  the  assignment  of  the 
note,  as  for  money  paid  upon  a  consideration  that  had  failed.  If 
property  was  given  for  the  assignment,  then  he  could  only  sue 
for  the  property,  as  for  property  sold  and  delivered ;  and  if  the 
assignment  was  for  a  prior  debt  then  the  prior  debt  only  could 
be  sued  for.     (Story  on  Prom.  Notes,  §  §  117,  118  and  notes.) 

Here,  the  consideration  paid  for  the  assignment,  and  to  be 
recovered,  if  any  thing,  is  not  set  out.  Nothing  more  is  averred 
in  this  respect  than  that  the  assignment  was  made  "for  value 
received."  In  what  the  value  was  received  whether  in  money, 
and  if  so,  how  much,  or  property,  or  by  way  of  satisfaction  of 
a  precedent  debt  does  not  appear.  There  is,  evidently,  not 
enough  stated  to  show  what  the  plaintiff  paid  and,  therefore  not 
enough  to  show  what  he  was  entitled  to  recover. 

The  instrument  in  writing  therein  mentioned,  executed  con- 
temporaneously with  the  assignment,  by  which,  as  is  alleged,  the 
defendant  agreed  that  the  notes  were  secured  by  mortgage,  is 
not  set  out  and  therefore  the  case  stands  as  if  the  allegations 
in  that  respect  were  stricken  out.  The  parol  agreement  made,  as 
is  alleged,  contemporaneously  with  the  written  assignment,  can 
not  be  admitted  to  vary  or  extend  the  effect  of  the  assignment 
as  written.  The  doctrine  in  this  respect  is  stated  in  the  case  of 
McClure  v.  Jeffrey  (8  Ind.,  79),  as  follows:  "The  rule  is,  that 
all  oral  negotiations  or  stipulations  between  the  parties  which 
preceded  or  accompanied  the  execution  of  the  instrument  are  to 
be  regarded  as  merged  in  it,  and  the  latter  is  to  be  treated  as  the 
exclusive  medium  of  ascertaining  the  agreement  to  which  the 
contractors  bound  themselves." 

The  demurrers,  we  think,  were  correctly  sustained,  and  the 
judgment  must  be  affirmed. 

The  judgment  is  affirmed  with  costs. 


98  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

HULL  v.  CONOVER. 

35  Ind.  372.     1871. 

Downey,  C.  J.  This  suit  was  commenced  by  William  Con- 
over  againsl  the  appellant,  before  a  justice  of  the  peace,  where 
there  was  judgmenl  Uw  the  defendant.  The  plaintiff  appealed 
to  the  Circuit  Court,  where  the  death  of  William  Conover  was 
suggested,  and  his  executors  made  parties  plaintiffs  in  his  stead. 
There  was  judgmenl  in  the  Circuit  Court  for  the  plaintiffs,  from 
which  the  defendanl  appealed  to  this  Court. 

The  first  point  presented  to  us  is,  that  the  cause  of  action 
is  insufficient.    It  consists  of  the  following  note: 

"$150.00.  Covington,  June  15,  1868. 

"Eighteen  months  after  date  T  promise  to  pay  to  the  order 
of  Hiram  Abdil]  one  hundred  and  fifty  dollars,  value  received, 
without  any  relief  from  valuation  or  appraisement  laws.  In- 
terest from  date  six  per  cent. 

"Daniel  Hull." 

There  is  no  indorsement  of  the  note  by  Abdill  to  William  Con- 
over,  or  to  the  appellees,  and  there  is,  therefore,  nothing  to  show 
any  right  in  him  or  them  to  maintain  the  action.  See  Well  v. 
Trotter,  4  Blackf.  12;  Vandagrift  v.  Tate,  lb.  174;  Hamilton  v. 
Ewing,  6  Blackf.  88;  McDonald's  Treat.  68,  69.  This  is  not  a 
mere  defect   of  parties. 

The  jud())tu  til  is  reversed,  with  costs,  and  the  cause  remanded. 


Liability  of  the  Indorser  and  Rights  of  the  Indorsee* 

HOTEL  CO  v.  BAILEY. 
64  Vermont,  151;  24  Ml.  Rep.,  136.     1892. 

Special  assumpsit,  for  the  annual  interest  due  on  five  promis- 
sory notes  indorsed  by  the  defendant.  Plea,  the  general  issue, 
Judgment  for  the  defendant.     The  plaintiff  excepts. 


*  See  Sec.  813,  Vol.  C,  Cyclopedia  of  Law. 


HOTEL   CO.   v.   BAILEY.  99 

Per  Curiam. — It  appears  by  the  statement  of  facts  that  Geo. 
Doolittle  and  Mrs.  E.  J.  Doolittle  promised  to  pay  the  defend- 
ant, William  P.  Bailey,  or  order,  five  thousand  dollars,  as  their 
five  promissory  notes  should  respectively  become  due  and  the 
interest  thereon  annually.  The  notes  are  dated  April  1,  1886, 
are  for  $1,000  each  and  payable  16,  17,  18,  19  and  20  years  from 
their  date. 

The  plaintiff,  as  the  indorsee  of  the  notes,  seeks  to  recover  of 
the  defendant,  as  indorser,  the  first  three  years'  interest  upon 
them  without  demand  of  the  makers  and  notice  to  the  defendant 
of  the  makers'  default  of  payment. 

The  defendant's  counsel  contended, — 1st,  that  the  indorser 
cannot  in  any  event  be  compelled  to  pay  the  interest  as  it  an- 
nually falls  due,  that  his  conditional  liability  does  not  become 
absolute  until  the  notes  respectively  mature  and  then  only  after 
demand  and  notice. 

2d.  That  if  the  interest  is  collectable  of  the  indorser  as  it 
annually  accrues  it  is  after  the  usual  measures  have  been  taken 
to  make  him  chargeable. 

The  general  rule  of  law  relative  to  the  respective  liabilities  of 
the  maker  and  indorser  of  a  promissory  note  is  well  defined. 
The  promise  of  the  maker  is  absolute  to  pay  the  note  upon  pre- 
sentment at  its  maturity.  The  promise  of  the  indorser  is  condi- 
tional that  if,  when  duly  presented,  it  is  not  paid  by  the  maker, 
he,  the  indorser,  will,  upon  due  notice  given  him  of  the  dishonor, 
pay  the  same  to  the  indorsee  or  other  holder. 

It  seems  clear  that  the  indorser  is  not  liable  for  the  annual 
payment  of  the  interest  without  performance  of  these  con- 
ditions by  the  holder.  If  he  were  thus  liable  his  relation  to  the 
note  would  be  like  that  of  a  surety  or  a  joint  maker  and  his 
promise,  instead  of  being  conditional,  would  be  absolute  as  to 
the  payment  of  the  interest.  This  is  contrary  to  the  general 
statement  of  the  law  that  his  liability  is  conditional.  The  rela- 
tion of  principal  does  not  exist  between  him  and  the  maker. 
They  are  not  co-principals.  Their  contracts  are  separate  and 
they  must  be  sued  separately,  at  common  law.  (Randolph  Com. 
Paper,  s.  739.) 

The  maker  has  received  the  money  of  the  payee  and  in  consid- 
eration thereof  promises  (absolutely)   to  repay  it  according  to 


100  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

the  terms  of  the  note,  and  if  lie  Tails  to  pay,  his  contract  is 
broken  and  he  is  liable  for  the  breach.  The  contract  of  the 
indorser  is  a  new  one,  made  upon  a  new  consideration  moving 
from  the  indorsee  to  himself.  His  undertaking  is  in  the  nature 
of  a  guaranty  that  the  maker  will  pay  the  principal  and  interest 
according-  to  the  terms  of  tin'  note.  His  liability  is  fixed  upon 
the  maker's  default  upon  demand,  and  notice  to  him  of  such 
default.  This  new  contract  cannot  he  construed  as  an  absolute 
one  to  pay  the  interest  without  default  of  or  demand  upon  the 
maker.  The  promise  cannot  he  absolute  as  to  the  payment  of 
interest  when  it  is  clearly  conditional  as  to  the  payment  of  the 
principal. 

It  is  held  that  though  the  annual  interest  (interest  payable 
annually)  upon  a  promissory  note  may  he  collected  of  the  maker 
as  it  falls  due,  it  is  not  separated  from  the  principal  so  that  the 
recovery  of  it  is  barred  by  the  statute  of  limitations  until  the 
recovery  of  the  principal  is  thus  barred.  Grafton  Bank  v.  Doe 
et  al.,  19  Vt.,  463.  The  holder  of  a  note  with  interest  payable! 
annually  loses  no  rights  against  the  parties  to  it,  whether  makers 
or  indorsers,  by  neglecting  to  demand  interest,  and  he  has  the 
election  to  do  so,  or  wait  and  collect  it  with  the  principal,  for  it 
is  regarded  as  an  incident  of  the  principal.  National  Bank  of 
North  America  v.  Kirby,  108  Mass.,  407.  But  it  is  so  far  an 
independent  debt  that  he  may  maintain  an  action  against  the 
makers  for  it  as  it  annually  accrues,  or  allow  it  to  accumulate 
and  remain  as  a  part  of  the  debt  until  the  note  matures.  Catlin 
v.  Lyman,  16  Vt.,  44.  In  the  latter  course  the  makers  would  be 
chargeable  with  interest  upon  each  year's  interest  from  the  time 
it  was  due  until  final  payment.  1  Aik.,  410;  Austin  v.  Imus, 
23  Vt.,  286.  It  was  said,  by  the  court  in  Talliaferro's  Ex'rs.  v. 
King's  Admr.,  9  Dana,  331  (35  Am.  Dec,  140)  :  "The  interest, 
by  the  terms  of  the  covenant,  is  made  payable  at  the  end  of  each 
year,  and  is  as  much  then  clemandable  as  if  a  specific  sum  equal 
to  the  amount  of  interest  had  been  promised ;  and,  in  default  of 
payment,  as  much  entitles  the  plaintiff  to  demand  interest  upon 
the  amount  so  due  and  unpaid.  The  fact  that  the  amount  so 
promised  to  be  paid  is  described  as  interest  accruing  upon  a 
larger  sum,  which  is  made  payable  at  a  future  day,  cannot  the 
less  entitle  the  plaintiff  to  demand  interest  upon  the  amount,  in 


HOTEL    CO.    v.    BAILEY.  101 

default  of  payment,  as  a  just  remuneration  in  damages  for  the 
detention  or  non-payment." 

It  is  true  that  at  the  maturity  of  the  notes  the  defendant 
would  be  liable,  as  indorser,  for  both  principal  and  interest, 
upon  due  demand  and  notice,  although  these  measures  had  not 
been  taken  to  make  him  chargeable  as  the  interest  fell  due 
each  year.  Notice  of  the  maker's  default  of  payment  of  interest 
need  not  be  given  annually  to  the  indorser  in  order  to  charge 
him  with  liability  for  interest  when  the  note  matures.  This 
is  so  stated  by  the  court  in  National  Bank  of  North  America 
v.  Kirby,  supra.  In  Howe  v.  Bradley  (19  Me.  31),  it  is  held 
that  when  a  note  is  made  payable  at  some  future  period,  with 
interest  annually  till  its  maturity  and  no  demand  is  made  for 
the  annual  interest  as  it  becomes  due,  or  if  made,  no  notice 
thereof  is  given  the  indorser,  if  duly  notified  of  the  demand 
and  non-payment  when  the  note  falls  due,  is  liable  for  the 
whole  amount  due,  both  principal  and  interest;  that  the  obli- 
gation imposed  by  the  law  upon  the  holder  is  only  to  demand 
payment  and  give  the  required  notice  when  the  bill  or  note 
becomes  payable.  It  is  not  held  in  this  country  that  interest 
is  subject  to  protest  and  notice,  according  to  the  law  mer- 
chant, in  order  to  charge  indorsers  with  it  when  the  note  ma- 
tures. The  usual  consequence  of  omission  to  notify  the  indorser 
of  the  maker's  default,  namely,  the  release  of  the  indorser, 
would  not  follow  the  omission  to  give  him  annual  notice  of  such 
default.  A  note  is  not  dishonored  by  a  failure  of  the  maker 
to  pay  interest.  (First  National  Bank  v.  County  Commissioners, 
14  Minn.,  77  (100  Am.  Dec,  196,  Note.) 

The  defendant's  counsel  argues  that  it  would  be  inconsistent 
to  hold  the  indorser  liable  for  interest  which  is  a  mere  incre- 
ment of  the  principal,  until  his  liability  is  established  to  pay 
the  sum  out  of  which  the  interest  springs;  that  there  may  be 
defences  to  the  note  at  its  maturity  which  will  release  the  maker 
and  consequently  the  indorser,  or  that  the  indorser  may  then 
be  released  by  neglect  of  demand  and  notice.  On  first  impres- 
sion it  might  seem  inconsistent  that  the  maker  should  be  com- 
pelled to  pay  interest  before  his  liability  has  been  fixed  to  pay 
the  principal,  but  that  is  his  contract.  It  is  also  argued  that 
the  fact  that  the  interest,  when  uncollected,  is  an  incident  of 


102  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

the  debt  so  thai  as  it  annually  Tails  due,  demand  and  notice 
are  not  necessary  in  order  to  charge  either  the  maker  or  the 
indorser  with  liability  to  pay  il  when  the  note  matures,  is  ground 
for  holding  that  the  indorser  is  not  liable  for  interest  until 
he  is  made  liable  for  the  principal. 

The  question  is  whether  the  indorser,  by  the  act  of  indorse- 
ment, promises  to  pay  anything  on  the  note  till  its  maturity,  at 
which  time  he  clearly  may  be  made  liable  for  both  principal 
and  interest.  The  note  hears  upon  its  face  an  absolute  promise 
by  the  maker  to  pay  the  principal  when  it  becomes  due  and  the 
interest  thereon  annually.  His  promise  is  two-fold.  It  is  as 
absolute  to  pay  the  interest  at  the  end  of  each  year  as  to  pay 
the  principal  at  the  end  of  the  time  specified.  Now  what  is 
the  nature  of  the  contract  which  the  indorser  makes  with  the 
indorsee?  His  contract  is  not  in  writing,  like  that  of  the  maker, 
but  his  name  upon  the  note  is  evidence  that  he  has  received 
value  for  it.  and  also  of  an  undertaking  on  his  part  that  it  shall 
be  paid  according  to  its  tenor.  When  he  indorses  it  and  de- 
livers it  to  the  indorsee  he  directs  the  payment  to  be  made  to 
the  latter,  and  in  effect  represents  that  the  maker  has  promised 
to  pay  certain  sums  of  money  according  to  the  terms  of  the  note, 
that  is,  the  principal  at  maturity  and  the  interest  annually;  that 
if  the  maker  fails  to  pay  on  demand,  he,  the  indorser,  will  pay 
on  due  notice.  His  conditional  promise  is  concurrent  with  the 
absolute  promise  of  the  maker.  His  liability  to  pay  interest 
and  principal,  as  each  respectively  falls  due,  arises  from  his 
contract.  It  is  his  contract  that  he  will  make  payment  when* 
ever  the  maker  is  in  default  and  he,  the  indorser,  is  duly  notified 
thereof. 

It  is  true  that  interest  is  an  incident,  an  increment  of  the 
principal,  and  that  the  holder  may  wait  for  it  until  his  note 
matures  and  then  collect  it  with  the  principal.  He  may,  how- 
ever, by  the  contract,  collect  it  as  it  falls  due,  of  the  maker,  and 
upon  the  latter  "s  default,  of  the  indorser. 

The  courts  of  England  have  never  recognized  the  American 
doctrine  that  interest  is  a  mere  incident,  an  outgrowth  of  the 
principal,  and  in  many  cases  follows  and  is  recoverable  as  such 
without  an  express  contract.  Until  37  lien.,  8,  c.  9,  it  was 
unlawful  to  demand   interest  even  upon  a  contract  to  pay  it. 


HOTEL    CO.    v.    BAILEY.  103 

Since  the  case  of  DcIIavilland  v.  Bowerbank  (1  Camp.,  50), 
interest  has  been  allowed  in  England  upon  express  contracts 
therefor,  and  not  otherwise.  "Where  there  is  such  a  contract 
interest  stands  like  the  principal  in  respect  to  the  rights  and 
liabilities  of  an  indorser.  (Sedg.  on  Dam.,  383;  Selleck  v. 
French,  1  Conn.,  32,  (6  Am.  Dec,  189,  note.)  In  Jennings 
v.  Napanee  Brush  Co.,  (Reported  in  Canada  Law  Jour.,  Vol. 
20,  No.  19)  in  a  learned  opinion  by  McDougall,  J.,  it  was  held 
that  where  there  was  an  express  contract  to  pay  interest  an- 
nually or  semi-annually,  it  was  not  different  from  a  contract 
to  pay  an  installment  of  the  principal  itself,  and  that  notice  to 
the  indorser  of  the  maker's  default  was  necessary  to  charge  the 
indorser  with  it.  In  that  case  the  indorser  was  released  from 
payment  of  the  first  two  half-yearly  installments  of  interest  for 
want  of  demand  and  notice. 

While  we  adhere  to  the  doctrine  laid  down  in  Grafton  Bank 
v.  Doe,  et  al.,  supra,  that  interest  is  in  general  an  incident  of 
the  debt,  it  is  consistent  to  hold  that  where  the  indorser  is 
himself  a  party  to  the  original  contract  to  pay  interest  annually, 
as  in  the  case  at  bar,  by  his  indorsement  he  guarantees  the  per- 
formance of  that  contract.  Any  other  holding  would  make  the 
indorser  liable  for  only  a  part  of  the  maker's  contract. 

The  case  of  Codman  v.  The  Vt.  and  Can.  Railroad  Co.  (16 
Blatch.  165),  has  been  brought  to  our  attention.  The  trustees 
and  managers  of  the  Vermont  Central  Railroad  Co.  and  the  Vt. 
and  Can.  Railroad  Co.,  issued  notes  to  the  amount  of  $1,000,000 
in  sums  of  $1,000  each,  payable  to  the  defendant  company,  in 
twenty  years  from  their  date,  with  interest  semi-annually  on 
presentation  of  the  interest  coupons  made  payable  to  bearer 
and  attached  to  the  notes.  On  each  note  was  this  indorsement, 
signed  by  the  treasurer  of  the  defendant,  under  its  seal:  "For 
value  received,  the  Vermont  and  Canada  Railroad  Company 
hereby  guarantee  the  payment  of  the  within  note,  principal  and 
interest,  according  to  its  tenor,  and  order  the  contents  thereof 
to  be  paid  to  the  bearer."  The  coupons  were  not  indorsed.  The 
notes  were  put  on  the  market  and  the  plaintiff  purchased  fifty 
of  them,  and  subsequently,  after  due  demand,  notice  and  protest, 
brought  this  suit  to  recover  the  amount  of  two  coupons  on  each 
of  his  notes,  the  notes  themselves  not  having  matured.     With- 


104     ACCEPTANCE  AND  TRANSFER  CONSIDERED. 

out  passing  upon  the  question  whether  the  guaranty  was  nego- 
tiable  and  available  to  the  plaintiff,  as  a  remote  holder,  Wiieeler, 
J.,  among  other  questions  thai  arose  in  the  case,  decided  that 
the  indorsement  was  a  contract  of  indorsement  running  to  the 
bearer,  and  that  demand,  notice  and  protest  fixed  the  liability 
of  the  indorser  to  pay  the  coupons,  and  gave  judgment  for  plain- 
tiff for  the  amounl  of  the  coupons. 

The  Supreme  Couri  of  the  United  States  has  repeatedly  held 
that  the  statute  of  Limitations  begins  to  run  upon  interest  cou- 
pons payable  annually  or  semi-annually,  from  the  time  they 
respectively  mature,  although  they  remain  attached  to  the  bonds 
which  represent  the  principal  debt.  (Amy  v.  Dubuque,  98  U. 
S..  470.)  Where  the  indorser  is  the  payee  of  the  note  there 
would  seem  to  be  no  difference  in  his  liability  in  respect  to 
interest  whether  the  maker's  promise  to  pay  it  is  contained  in 
the  body  of  the  note  or  in  interest  coupons  not  indorsed,  the 
notes  to  which  liny  are  attached  being  indorsed,  and  the  cou- 
pons being  mentioned  in  the  notes;  but  it  is  unnecessary  to 
decide  that  question  here. 

Upon  the  facts  found  by  the  county  court  this  action  can- 
not be  maintained  for  the  reason  that  the  plaintiff  never  fixed 
the  defendant's  liability  to  pay  the  three  years'  accrued  interest. 
It  does  not  even  appear  that  the  makers  refused  payment  of 
it  or  that  they  were  requested  to  pay  it  before  this  suit  was 
brought ;  therefore  nothing  is  due  from  the  defendant  to  the 
plaintiff. 

Judgment  affirmed. 

Ross,  Ch.  J.,  dissents. 


HARRIS  v.  BRADLEY. 

7  Terg.  310.     1835. 

This  was  an  action  brought  by  Bradley  against  Harris  upon 
a  note  for  $200,  upon  which  he  was  the  last  indorser.  The  note 
was  executed  by  Peter  R.  Rison  and  payable  to  William  C. 
Anderson,  and  the  names  of  Anderson  and  C.  M.  Ratcliffe  were 
upon  it  as  indorsers,  but  their  names  were  forgeries. 


ERWIN   v.   DOWNS.  105 

Judgment  for  plaintiff  and  defendant  appeals. 

Green,  J.  It  is  insisted  by  the  counsel  for  the  plaintiff  in 
error  that  he  is  not  bound  by  his  indorsement,  because  he  was 
imposed  on  and  induced  to  indorse  the  note  on  account  of  the 
supposed  genuineness  of  the  other  indorsements. 

This  proposition  is  altogether  fallacious.  The  holder  of  a-  bill 
or  note  has  nothing  to  do  with  the  preceding  indorsements,  and 
whether  genuine  or  not  his  immediate  indorser  is  liable  to  him. 
The  last  indorsement  is,  in  fact,  a  guaranty  of  the  preceding 
indorsements,  and  admits  the  handwriting  of  the  drawer  and 
prior  indorser,  although  the  bill  be  forged:  Chitty  on  Bills, 
197-8;  3  Kent  Com.  60;  2  Salk.  127.  The  Judge,  therefore, 
properly  admitted  the  note,  with  its  indorsements,  to  be  read 
to  the  jury,  upon  proof  having  been  made  of  the  indorsement 
by  the  defendant. 

Judgment  affirmed. 


ERWIN  v.  DOWNS. 

15  N.  Y.  575.     1857. 

Action  against  defendant  as  indorsee  of  two  promissory  notes, 
signed  in  the  firm  name  by  two  married  women  doing  business 
as  a  mercantile  firm  under  the  name  of  Waller  &  Burr.  Before 
the  notes  matured  defendant  indorsed  them  to  plaintiff,  who 
paid  full  consideration,  but  had  notice  of  the  fact  that  the  makers 
were  under  legal  disability  to  contract.  The  notes  were  duly 
presented  for  payment,  which  was  refused,  and  defendant  was 
duly  notified.  There  was  judgment  for  plaintiff  and  defendant 
appealed. 

Shankland,  J.  The  note  was  void,  as  against  the  makers, 
because  they  were  married  women,  and  incapable  of  contracting 
obligations  in  that  form.  But  when  the  defendant  indorsed 
the  note,  he  impliedly  contracted  that  the  makers  were  com- 
petent to  contract,  and  had  legally  contracted,  the  obligation 
of  joint  makers  of  the  note.  He  also  assumed  the  legal  obliga- 
tion, in  most  respects,  of  the  drawers  of  the  bill.  The  fact, 
known  to  the  plaintiff  at  the  time  he  took  the  note,  that  the 


10G  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

makers  were  married  women  did  not  deprive  him  of  the  character 
of  a  bona  Ji<l<  purchaser.  Nor  does  the  payee's  knowledge  that 
the  drawee  is  a  married  woman  discharge  the  drawer  in  ease  of 
linn  payment  of  the  bill  by  the  drawee.  Nor  is  the  indorsef 
discharged,  though  the  name  of  the  maker  is  forged:  1  Corns!. 
113.  The  fact  is  no1  found  that  the  plaintiff  was  aware  the 
note  was  accommodation  paper.  The  plaintiff  was  a  bona  /?di 
purchaser  within  the  Law  merchant.  Neither  the  complaint  nor 
the  finding  of  the  referee  tell  us  who  transferred  the  notes  to 
the  plaintiff.  The  legal  presumption  is  that  he  received  them 
from  some  Legal  holder  in  due  course  oi*  business. 
The  judgment  should  be  affirmed. 

Judgment  affirmed. 


FISH  v.  FIRST  NATIONAL  BANK  OF  DETROIT. 
42  Mich.  203.     1877. 

Marston,  J.  This  action  was  brought  by  the  bank  to  recover 
upon  certain  promissory  notes  made  payable  to  the  order  of 
I.  N.  Jenness  &  Co.  and  Francis  S.  Fish,  and  indorsed  by  them. 
The  indorsement  of  Mrs.  Fish  was  under  and  made  after  that 

1.  N.  Jenness  &  Co.  The  defense  set  up  is  that  at  the  time 
these  notes  were  given  and  indorsed,  the  firm  of  I.  N.  Jenness 
&  Co.  was  not  in  existence,  because  of  the  death  of  Henry  Fish, 
one  of  the  members  thereof;  that  if  Mrs.  Fish  is  liable  upon 
these  notes,  she  is  jointly  liable  with  Isaac  N.  Jenness,  and  that 
if  he  is  released  because  there  was  no  such  firm,  then  she  is 
released  also.  These  notes  were  given  to  the  bank  to  take  up 
other  notes  upon  which  the  firm  name  of  I.  N.  Jenness  &  Co. 
appeared,  that  firm  having  done  business  with  the  bank  previous 
to  the  date  of  the  paper  in  question. 

An  indorsement  admits  all  prior  indorsements  to  have  been 
duly  made.  It  is  said  the  indorser  warrants  the  title  and 
genuineness  of  the  paper  he  transfers,  and  that  when  sued  he 
cannot  deny  the  existence,  legality,  or  validity  of  the  contract 
which  his  indorsement  put  in  circulation,  for  the  purpose  of 


WATSON    v.    CHESIRE.  107 

defeating  his  own  liability:     Edwards  on  Bills  and  Notes,  289, 
291. 

This  is  strictly  right.  Parties  dealing  in  such  paper  are  not 
expected  to  be  familiar  with  the  signatures  of  the  several  in- 
dorsers.  If  satisfied  that  the  last  indorsement  is  genuine,  they 
are  not  required  to  look  beyond  in  the  absence  of  a  knowledge 
of  such  facts  as  would  impute  to  them  bad  faith  in  case  they 
ditl  not.  A  person  has  no  right  to  indorse  paper,  thereby 
making  it  negotiable,  and  offer  it  or  permit  it  to  be  offered  in 
the  usual  course  of  business,  unless  satisfied  that  the  signatures 
previously  appearing  thereon  are  genuine.  Mrs.  Fish  is  not  in 
a  position  in  this  case  to  escape  liability  upon  the  ground  that 
the  prior  indorsement  was  invalid. 

Mrs.  Fish  in  her  evidence  denied  having  received  notice  of 
the  non-payment  of  some  of  these  notes.  She  did  not  annex  to 
her  plea  an  affidavit  denying  the  fact  of  having  received  such 
notice,  as  required  by  the  statute :  1  Comp.  Laws,  §  603.  There 
was  direct  and  positive  evidence  given  on  the  trial  by  the  notary 
of  demand  made,  protest  and  notice  thereof  regularly  mailed  to 
the  defendant,  and  the  usual  notarial  certificate  was  attached 
to  each  of  the  notes.  The  facts  are  undisputed,  and  we  dis- 
cover no  error. 

The  judgment  must  he  affirmed  with  costs. 


Qualified,  Conditional  and  Restrictive  Indorsements. — Indorse- 
ment Without  Recourse* 

WATSON  v.  CHESIKE. 

18  la.  202.     1865. 

This  is  a  joint  action,  against  John  and  Wesley  Chesire  and 
John  M.  Griffith.  The  facts,  necessary  to  an  understanding  of 
the  case,  are  as  follows:  John  and  Wesley  Chesire  sold,  May 
15,  1858,  certain  land  in  Mills  County  to  one  Moore,  receiving, 

*  See  Sec.  808,  Vol.  6,  Cyclopedia  of  Law. 


108  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

for  pari  of  the  purchase-money,  bis  note,  siniml  by  a  mortgage 
on  a  portion  of  the  Land  sold. 

Afterward,  January  20,  I860,  the  Chesires  traded  or  sold  the 
note  and  mortgage  of  Moore  (which  note  was  dated  May  L5, 
L858,  was  for  the  sum  of  $743,  payable  one  year  after  date, 
with  ten  per  cent,  interest)  to  the  defendanl  Griffith,  receiving 
in  payment  or  exchange  ninety  acres  of  land,  a  mare  and  a 
heifer,  variously  estimated  by  the  witnesses  as  being  worth  from 
$250  to  $400,  and  upwards.  The  Chesires  indorsed  to  Griffith 
the  note  and  mortgage,  withoul  recourse  to  them. 

Afterward,  about  April,  1860,  Griffith  traded  or  exchanged 
the  Moore  aote  and  mortgage  to  the  plaintiff,  Watson,  for  cer- 
tain  land,  also  indorsing  the  same,  without  recourse. 

Watson  sues  the  Chesires  and  Griffith  on  the  indorsement. 
The  nature  of  the  pleadings  and  questions  raised  will  appear 
in  the  opinion.  Verdict  and  judgment  for  the  defendants,  and 
plaintiff  appeals. 

Dillon,  J.  The  first  error  assigned  by  the  plaintiff  is,  that 
''the  Court  erred  in  sustaining  the  defendants'  demurrer  to 
the  first  count  of  the  petition."  This  makes  it  essential  to 
set  out  the  substance  of  this  count  with  accuracy. 

It  commences  by  alleging  that  John  and  Wesley  Chesire  held 
and  owned  the  Moore  note  and  mortgage,  describing  them; 
that,  January  20,  1860,  the  said  Chesires,  for  a  good  and  val- 
uable consideration  (but  not  alleging  what),  sold  and  assigned 
said  note  to  their  co-defendant,  Griffith,  whereby  they  falsely 
warranted  the  said  note  to  be  genuine,  unpaid  and  unsatisfied 
in  any  way;  that  afterward  Griffith,  assignee  as  aforesaid,  sold 
and  assigned  said  note  to  the  plaintiff  for  a  good  and  valuable 
consideration,  whereby  he,  Griffith,  falsely  warranted,  etc.,  as 
above;  that  plaintiff  relied  upon  said  warranties  and  paid 
Griffith  for  said  note;  that  the  said  note,  at  the  time  the  same 
was  assigned  by  Chesires  to  Griffith,  and  by  Griffith  to  the 
plaintiff  "had  been  Cully  paid,  extinguished,  and  nothing  was 
due  thereon  from  the  said  Moore  to  the  defendants  or  either  of 
them;"  whereby  "the  defendants  fraudulently  deceived  the 
plaintiff,  to  his  damage"  in  the  amount  of  said  note.  Copies  of 
these  assignments  are  set  forth,  showing  that  they  were  made 
"without  recourse."     The  first  was  an  assignment  in  full  by 


WATSON    v.    CHESIRE.  109 

J.  and  W.  Chesire  to  "John  M.  Griffith  or  order,  without  re- 
course." The  next  was  in  blank,  as  follows:  "Without  re- 
course.   John  M.  Griffith. " 

To  this  the  Court  sustained  a  demurrer,  both  in  behalf  of  the 
Chesires  and  of  Griffith. 

We  will  consider  the  case,  with  respect  to  the  Chesires,  sep- 
arately and  first. 

Upon  consideration,  we  think  the  demurrer  was  rightly  sus- 
tained. 

It  is  only  by  treating  this  count  as  founded  upon  the  indorse- 
ment, that  the  plaintiff's  action  against  the  Chesires  has  any 
color  or  plausibilty. 

There  is,  except  through  the  indorsement,  no  privity  between 
the  plaintiff  and  the  Chesires.  The  latter  sold  the  note  to 
Griffith,  and  not  to  the  plaintiff.  The  plaintiff  purchased  of 
Griffith,  not  of  the  Chesires.  No  transaction  is  alleged  between 
the  plaintiff  and  the  Chesires.  Hence,  the  plaintiff's  right  to 
sue  the  latter,  if  it  exists  at  all,  must  exist  by  virtue  of  the  con- 
tract of  indorsement. 

Now  if  this  count  be  treated  as  one  ex  contractu  upon  the  in- 
dorsement, it  is  not  maintainable,  because  the  indorsement,  on 
its  face,  negatives  and  rebuts  any  personal  liability  on  the  part 
of  the  Chesires.  This  is  the  object  and  effect  of  an  indorsement 
' '  without  recourse. ' ' 

Such  an  indorsement  transfers  title,  but  stipulates  for  ex- 
emption from  the  ordinary  responsibility  of  an  indorser.  It 
will  not,  however,  protect  the  assignor  from  liability  over  from 
fraud  and  misrepresentation  in  the  assignment  of  the  note.  In 
point,  see  Welch  v.  Lindo,  7  Cranch,  159;  2  Curtis'  ed.,  496; 
Epler  v.  Funk,  8  Pa.  St.  (8  Barr)  468,  469 ;  Prettyman  v.  Short, 
5  Har.  (Del.)  360;  Richardson  v.  Lincoln,  5  Mete.  201;  Rice 
v.  Stearns,  3  Mass.  225 ;  Waite  v.  Foster,  33  Maine,  424 ;  Goupy 
v.  Harden,  7  Taunt.  159,  per  Dallas,  J. ;  Chitty  on  Bills,  218, 
225,  235;  Story  on  Notes,  §  146;  Lyons  v.  Miller,  6  Grat.  (Va.) 
427. 

Suppose  it  to  be  true  that,  in  the  transfer  of  the  Moore  note 
by  Chesires  to  Griffith,  the  latter  was  deceived  and  defrauded. 
This  would  give  Griffith  his  right  of  action  against  the  former. 
Suppose  it  to  be  true,  also,  that  the  plaintiff  was  deceived  and 


110  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

defrauded  by  Griffith.  This  would  give  him  a  right  of  action 
against  the  latter.  Be  could  qoI  sue  the  Chesires  for  the  fraud 
i  hey  practiced  upon  Griffith. 

So  that  the  reasoning  drives  us  back  to  the  point  at  which 
we  started,  viz.,  the  plaintiff  cannot  sue  Chesires  ex  contractu, 
having  had  no  transaction  with  them  except  upon  the  indorse- 
ment. If  the  firsl  count  is  treated  as  being  founded  upon  that, 
it  fails,  because  the  indorsement  itself  not  only  does  not  create, 
but  expressly  avoids,  a  cause  of  action.  {Vide  authorities  above 
cited.) 

The  case  presents  the  question  What,  in  the  absence  of  special 
contract,  are  the  obligations  of  the  transferrer  of  negotiable 
[taper,  who  indorses  it  without  recourse?  It  seems  to  us  that 
the  obligations  of  a  transferrer  of  such  paper,  by  indorsement 
without  recourse,  are  substantially  the  same  as  those  of  a  trans- 
ferrer of  such  paper  when  payable  to  bearer  by  delivery  merely. 

It  is  a  clear  and  well-settled  doctrine,  that  such  a  transfer 
does  not  make  the  party  liable  as  indorser.  "When  he  indorses 
paper  without  recourse,  or  transfers  it  (if  payable  to  bearer  or 
if  indorsed  in  blank)  by  delivering  merely,  without  putting 
his  name  upon  it,  he  ceases  to  be  a  party  to  the  paper.  He 
cannot  be  made  liable  as  a  party  to  or  upon  the  instrument. 

There  may  be  a  liability  in  such  cases,  but  it  arises  upon  the 
transaction,  upon  the  facts  of  the  ease,  to  be  asserted  in  an 
action  for  the  original  consideration  of  its  value,  or  for  fraud 
practiced,  and  not  upon  the  indorsement  or  upon  the  paper 
transferred.  Speaking  of  the  same  general  subject,  in  the  well- 
known  case  of  Jones  v.  Ryde,  1  Marsh.  157,  5  Taunt.  489, 
Gibbs,  C.  J.,  says:  The  ground  of  resisting  this  claim  is,  that 
it  was  a  negotiable  security  without  indorsement;  and  that 
when  the  holder  of  a  negotiable  security  passes  it  away,  without 
indorsing  it,  he  means  not  to  be  responsible  upon  it.  This 
doctrine  was  fully  discussed  in  the  case  of  Fenn  v.  Harrison,  3 
T.  R.  757;  and  the  proposition  is  true,  but  only  to  a  certain 
extent.  "If  a  man  pass  an  instrument  of  this  kind  without 
indorsing  it,  he  cannot  be  sued  as  indorser,  but  he  is  not  released 
from  the  responsibility  which  he  incurs  by  passing  an  instru- 
ment which  appears  to  be  of  a  greater  value  than  it  really  is." 
And  this  case  is  recognized  as  authority  in  the  text-books,  and 


WATSON    v.    CHESIRE.  Ill 

in  England  in  subsequent  cases :    Wilkinson  v.  Johnson,  3  B.  & 
C.  428,  and  in  this  country :  Cabot  Bank  v.  Morton,  4  Gray,  156. 

The  accepted  doctrine  on  this  subject  may  be  thus  stated: 
Where  a  note  is  transferred  without  recourse,  equally  as  when 
it  is  transferred  by  delivery  only,  the  transferrer  is  exempted 
from  all  the  ordinary  responsibilities  which  attach  to  such  a 
transfer.     (See  authorities  first  in  this  opinion  cited.) 

But  he  does  not,  unless  such  is  the  agreement,  understand- 
ing, or  contract  of  the  parties,  stand  free  from  all  obligations. 
Thus,  unless  otherwise  agreed,  he  warrants  that  the  paper  so 
transferred  is  genuine,  and  not  forged  or  fictitious:  Jones  v. 
Ryde,  supra;  Fuller  v.  Smith,  Ryan  &  Mood.  49;  1  C.  &  P. 
197;  Chitty  on  Bills,  245;  Story  on  Notes,  §  118;  Aldrich  v. 
Jackson,  1  R.  I.  218;  2  Parsons  on  Notes  and  Bills,  ch.  2,  §  2, 
p.  37,  and  authorities;  Lyons  v.  Miller,  6  Gratt.  247;  Morrison 
y.  Currie,  4  Duer,  79 ;  Cabot  Bank  v.  Morton,  supra;  Rieman 
v.  Fisher,  4  Am.  Law  Reg.  433.  He  warrants  by  implication, 
nothing  to  the  contrary  being  shown,  that  it  is  of  the  kind  and 
description  that  it  purports  on  its  face  to  be :  Allen  v.  Pegram, 
16  Iowa,  163,  in  relation  to  illegal  bank  stock;  Gompertz  v. 
Bartlett,  2  Ellis  &  Bl.  849 ;  24  Eng.  L.  &  Eq.  156,  where  the 
vendor  of  a  bill  was  held  liable,  though  he  did  not  put  his 
name  upon  it;  Young  v.  Cole,  3  Bing.  N.  C.  724,  as  to  liability 
of  vendor  on  the  sale  of  invalid  Guatemala  bonds;  and  see, 
further,  the  authorities  above  referred  to,  and  Kempson  v. 
Sanders,  11  Bing.  5;  Redfield  on  Railways,  50,  note;  Hilliard 
on  Sales,  p.  456,  §  37;  Eaton  v.  Melius,  7  Gray,  566,  which 
decides  that  there  is  an  implied  warranty  that  the  assignor  has 
done  nothing,  and  will  do  nothing,  to  prevent  the  assignee  from 
collecting  the  claim  assigned. 

So  there  is  an  implied  warranty,  unless  it  is  otherwise  agreed, 
that  the  parties  to  the  instrument  are  sui  juris,  and  capable  of 
contracting:  Theall  v.  Newell,  19  Verm.  202;  Lobdell  v.  Baker, 
1  Mete.  193;  3  lb.  469;  Jones  v.  Crosthwaite,  17  Iowa,  393, 
and  cases ;  2  Pars,  on  Notes  and  Bills,  39 ;  but  no  implied  war- 
ranty of  their  solvency:  Chitty  on  Bills,  245;  2  Parsons  on 
Notes  and  Bills,  41;  Epler  v.  Funk,  8  Pa.  St.  468;  Burgess  v. 
Chapin,  5  R.  I.  225.  So  there  is  an  implied  warranty  that  the 
instrument  transferred  has  not  been  paid.     And,  generally,  it 


112  ACCEPTANCE    AND    TRANSFER    CONSIDERED. 

is  laid  down  by  Mr.  Parsons  (2  Notes  and  Bills,  eh.  2,  p.  41), 
who  follows  and  closely  copies  Mr.  Chitty  (Chitty  on  Bills,  247), 
that,  "in  all  eases  where  the  assignor"  (we  may  add,  whether 
by  delivery  or  by  indorsement,  made  "without  recourse"), 
"of  a  bill  or  note  knows  it  to  be  of  no  value,  and  the  assignee 
receives  it  in  good  faith  (not  aware  of  the  fact),  paying  a  valu- 
able consideration  of  any  kind,  the  assignor  may  be  compelled 
to  repay  or  return  the  consideration  thus  received."  And  see 
Burgess  v.  Chapin,  5  R.  1.  225,  which  holds  an  assignor  with- 
out indorsement  to  be  liable  upon  the  ground  of  fraud— the  rule 
of  tun  at  emptor  otherwise  applying. 

But,  in  all  such  cases,  the  action  is  not  upon  the  paper  trans- 
ferred, but  against  the  vendor  or  transferrer  upon  and  for  the 
original  consideration  or  its  value,  or  for  the  fraud  practiced; 
and  the  latter  is  "liable  to  the  vendee,"  to  use  the  language  of 
Ames,  C.  J.,  in  Aldrich  v.  Jackson,  5  R.  I.  218,  "for  what  he 
has  received  from  him  on  the  ground  of  failure  of  considera- 
tion." (Without  quoting,  see  2  Parsons  on  Notes  and  Bills,  37, 
and  note;  Kephart  v.  Butcher,  17  Iowa,  240;  Chitty  on  Bills, 
246,  and  authorities  cited;  Story  on  Notes,  §  117  (5th  ed.),  and 
cases  cited  in  notes  4  and  5;  Welch  v.  Lindo,  7  Cranch,  159; 
Prettyman  v.  Short,  5  Earring.  (Del.),  360;  Eaton  v.  Melius,  7 
Gray,  566,  holding  that,  in  the  absence  of  fraud  in  the  assignor, 
the  assignee  can  only  recover  of  him  the  amount  of  the  con- 
sideration paid  for  the  assignment,  with  interest.) 

If  the  foregoing  views  are  correct,  it  follows  that  the  plaintiff, 
Ik  ill  ling  simply  the  indorsement  of  the  Moore  note  "without 
recourse,"  could  not  sue  the  Chesires  on  the  indorsement.  His 
remedy,  if  he  could  not  make  out  a  case  upon  the  facts,  would 
be  a  special  one  against  Griffith,  of  whom  he  purchased  the 
note,  and  to  whom  he  made  payment  therefor.  So  Griffith's 
remedy  would  be  against  the  Chesires.  Under  our  statute,  it 
may  be  that  Griffith  might  specially  assign  his  cause  of  action 
against  Chesires  to  the  plaintiff;  but  the  mere  indorsement  of 
the  note  without  recourse  would  not  have  this  effect.  Such  an 
indorsement  operates  simply  to  transfer  the  title  to  the  note — 
not  an  independent  cause  of  action.  The  demurrer  as  to  the 
first  count  of  the  petition  was,  beyond  doubt,  properly  sustained 
as  to  the  Chesires. 


CLAFLIN    v.    WILSON.  113 

And  if  we  are  right  in  considering  it  as  being  intended  as 
one  upon  the  indorsement,  and  not  as  one  intended  and  adapted 
to  recover  the  consideration  paid  for  the  note,  it  was  also  prop- 
erly sustained  as  to  Griffith. 

Affirmed. 


CLAFLIN  v.  WILSON. 
51  Iowa,  15.     1879. 

Beck,  C.  J.  I.  The  petition  alleges  that  defendant  Wilson 
made  to  plaintiff  three  promissory  notes,  and  executed  a  mort- 
gage to  secure  their  payment;  that  the  note  first  falling  due 
was  by  plaintiff,  in  the  ordinary  course  of  business,  indorsed 
for  collection,  and  by  Wilson,  or  by  some  one  for  him,  duly 
paid,  and  that  defendant  Davis,  claiming  that  he  had  bought 
the  first  note,  instituted  an  action  to  foreclose  the  mortgage 
and  recovered  a  decree  thereon  and  caused  the  lands  to  be 
sold  upon  an  execution.  He  and  his  attorney  in  the  case 
became  purchasers,  and  received  a  certificate  of  purchase  from 
the  sheriff.  Plaintiff  alleges  that  he  did  not  transfer  the  note 
to  Davis  nor  authorize  any  one  to  do  so  for  him,  and  had  no 
knowledge  of  his  claim  until  about  the  time  the  suit  was 
commenced,  and  that  Wilson  is  now  insolvent.  The  relief  prayed 
for  is  that  the  foreclosure  proceedings  on  the  note  and  the  sale 
thereunder  be  set  aside,  and  that  the  mortgage  be  foreclosed 
for  the  amount  due  upon  the  two  notes  last  falling  due,  which 
are  still  plaintiff's  property. 

The  answer  of  defendant  Davis  admits  the  foreclosure  pro- 
ceedings referred  to  in  the  petition,  and  alleges  that  he  bought 
the  note  in  good  faith  and  for  value.  Other  averments  of  the 
petition  are  denied. 

II.  The  evidence  establishes  the  following  facts:  Plaintiff 
sent  the  note  through  a  bank  to  another  banking  house  for 
collection.  It  was  indorsed  by  plaintiff  in  blank,  and  by  the 
bank  to  whom  he  delivered  it  to  the  bank  receiving  it  "for 
collection."     Neither  of  the  banks  were  authorized  to  transfer 


114     ACCEPTANCE  AND  TRANSFER  CONSIDERED. 

the  note:  their  power  was  limited  to  its  collection.  The  second 
bank,  or  its  successor  in  business,  received  the  amount  due  upon 
the  Qote  from  Davis,  and  delivered  to  him  the  note.  Davis 
understood  the  transaction  as  being  a  purchase  of  the  note, 
and  the  banker  of  whom  be  received  it  had  the  same  under- 
standing, r.iii  Davis  is  chargeable  with  notice  that  the  banker 
with  whom  be  had  the  transaction  was  not  authorized  to  trans- 
fer or  sell  the  note  Th<-  indorsement  upon  it  expresses  that 
it  was  transferred  to  him  for  collection.  The  law  will  not  permit 
him  to  plead  ignorance  of  the  extent  of  the  authority  of  tin' 
holder  who  delivered  it  to  him.  Upon  this  point  there  can  be 
no  eoni roversy. 

It  is  an  elementary  rule,  which  need  not  he  here  supported 
by  authority,  that  a  note  indorsed  for  collection  cannot  be  trans- 
ferred by  one  receiving  it  under  such  indorsement  to  another 
who  has  notice  of  the  limitation  upon  the  authority  of  the 
holder.  Davis  cannot,  therefore,  be  regarded  as  a  purchaser 
of  the  note,  so  as  to  cut  off  any  righl  or  equity  of  plaint  ill'. 

III.  But  Davis  insists  that  plaintiff  is  bound  by  the  decree 
of  foreclosure,  and  that  the  rights  of  the  parties  are  res  adju- 
dicata. 

The  proceedings  and  decree  in  that  ease  are  not  before  us, 
nor  do  the  pleadings  set  them  out  by  averments  so  far  as  to 
authorize  us  to  determine  whether  plaintiff  is  bound  thereby. 
The  petition  does  not  state  whether  plaintiff  was  or  was  not 
a  party  in  the  case.  It  alleges  that  no  personal  service  was 
made  upon  him.  The  answer  alleges  that  plaintiff  was  served 
by  publication,  hut  there  is  not  one  word  in  the  abstract  that 
a  judgment  in  that  case  was  rendered  against  plaintiff,  or  that 
his  rights  were  attempted  to  be  affected  thereby.  For  aught 
we  know,  plaintiff,  if  he  was  a  party  to  that  suit,  may  have 
I n  dismissed,  and  no  decree  rendered  against  him.  But  de- 
fendant insists  that  counsel  for  plaintiff  admit  in  their  argu- 
ments the  judgment  pleaded  as  res  adjudicata.  The  language 
which  is  claimed  to  he  an  admission  is  as  follows:  "In  the 
case  of  Davis  v.  Wilson  et  al.,  Clafiin  had  no  notice  of  the 
pendency  of  the  suit.  It  is  true  that  notice  was  made  by  pub- 
lication. No  appearance  was  made  by  any  of  the  persons  named 
as  defendants  in  Davis'  bill,  and  default  was  rendered.     Clafiin 


CLAFLIN    v.    WILSON.  115 

obtained  a  rehearing  within  the  time  required,  and  the  order 
of  foreclosure  was  vacated  after  a  fair  and  impartial  hearing. 
Davis  has  suffered  no  wrong;  he  has  now  all  the  remedy  to 
which  he  was  at  first  entitled." 

It  surely  cannot  be  claimed  that  this  language,  whatever 
else  it  may  mean,  admits  that  a  judgment  was  rendered  which 
in  form  cut  off  and  foreclosed  all  rights  held  by  plaint  ill'. 

IV.  Defendant  insists  that  plaintiff  ratified  the  sale  and 
transfer  of  the  note  by  receiving  and  retaining  the  money 
paid  him  by  the  banker.  But  the  money  was  received  in  igno- 
rance of  the  claim  of  purchase  by  Davis.  He  was  authorized 
to  regard  the  transaction  as  payment,  and  he  received  the  money 
in  satisfaction  of  the  note.  The  fact  that  plaintiff  retains  the 
money  cannot  be  regarded  as  a  ratification  of  the  sale  for  the 
reason  that  he  could  not  have  been  restored  to  the  condition  he 
was  in  before  the  payment  of  the  note,  because  of  the  decree 
in  favor  of  Davis,  and  his  attempt  to  enforce  it  by  sale  of  the 
lands. 

We  think  the  decree  of  the  Court  below  is  correct.  It  is,  there- 
fore, affirmed. 


CHAPTER  VI. 

DUTIES  OF  THE  HOLDER.* 
Prcs<  nl nc  nt  for  I '<i!inu  ill. — Protest. — Notice. 

LAWRENCE  v.  LANGLEY. 

14  N.  E.  70.     1843. 

Assumpsit  against  the  defendant,  as  indorser  of  a  promissory- 
note,  made  by  David  J.  Lancaster  and  William  Richardson, 
dated  September  1,  1835,  and  payable  to  the  defendant,  or 
order,  in  one  year  from  date,  with  interest,  and  by  him  indorsed 
to  the  plaintiff. 

On  or  about  the  1st  of  xYugust,  1835,  the  plaintiff,  being  the 
owner  of  certain  stage  property,  sold  the  same  to  the  defendant 
for  $1,125.  The  defendant  paid  $625  of  the  purchase-money 
in  cash,  and  transferred  the  note  in  suit  to  the  plaintiff,  as 
security  for  the  payment  of  the  balance.  Before  the  note  be- 
came due,  Lancaster  became  bankrupt,  and  Richardson  died 
insolvent. 

On  the  2d  day  of  September,  1836,  the  defendant  was  noti- 
fied of  the  non-payment  of  the  notice,  and  payment  thereof  was 
demanded  of  him,  which  he  refused.  The  plaintiff  moved  to 
amend  the  declaration  by  adding  a  count  for  the  property  sold 
the  defendant. 

The  amendment  was  admitted  in  the  Court  below,  subject  to 
the  opinion  of  this  Court. 

If  the  Court  should  be  of  opinion  that  the  action  is  sustained 
upon  the  present  declaration,  judgment  is  to  be  rendered  for 
the  plaintiff.  Or,  if  the  Court  should  be  ofa  opinion  that  the 
proposed  amendmenl  is  admissible,  the  case  is  to  be  transferred 
to  the  Court  of  Common  Pleas  for  trial.  If  otherwise,  judg- 
ment is  to  be  rendered  for  the  defendant. 


*  See  Sees.  814-833,  Vol.  6,  Cyclopedia  of  Law. 

116 


LAWRENCE    v.    LANGLEY.  117 

Woods,  J.  The  defendant  in  this  case  is  attempted  to  be 
charged  as  the  indorser  of  the  note  declared  on.  In  order  to 
that  result,  it  must  appear  that  a  demand  of  payment  was  duly 
made  upon  the  maker,  and  notice  thereof,  and  of  its  non-pay- 
ment, and  that  the  holder  relied  upon  the  indorser  for  payment, 
was  seasonably  given  to  the  defendant,  or  demand  and  notice 
was  waived,  or  the  want  thereof  excused. 

By  virtue  of  the  statute,  the  note  was  payable  with  grace. 
When  a  note  is  payable  on  time,  a  demand,  to  be  of  any  avail, 
should  be  made  on  the  last  day  of  grace.  An  earlier  demand 
is  insufficient  to  charge  an  indorser:  Leavitt  v.  Simes,  3  N. 
H.  Rep.  14.  But  in  this  case  it  does  not  appear  that  any  de- 
mand at  all  was  made.  And  the  notice  shown  was  insufficient, 
even  if  a  proper  and  seasonable  demand  had  been  shown ;  for, 
if  a  proper  demand  had  been  proved,  then  the  notice,  being 
before  the  last  day  of  grace,  would  have  preceded  the  demand 
in  point  of  time,  and  would  for  that  reason  have  been  merely 
nugatory.  Besides,  notice  before  the  last  day  of  grace  is  insuf- 
ficient, and  void,  unless  sustained  by  some  usage  assented  to  by 
the  indorsee,  which  is  not  pretended  in  this  case:  Dennie  v. 
Walker,  7  N.  H.  Rep.  199.  Here,  then,  no  demand  is  shown, 
and  no  sufficient  or  available  notice. 

Does  the  case  find  grounds  of  excuse,  relieving  the  plaintiff 
from  the  ordinary  duty  and  necessity  of  seasonable  demand 
and  notice? 

If  the  death  of  a  maker  before  the  maturity  of  the  note,  or 
that  and  other  circumstances,  may,  and  do,  in  certain  cases, 
thus  excuse  the  holder  of  a  note:  Hale  v.  Burr,  12  Mass.  Rep. 
86;  Burrill  v.  Smith,  7  Pick.  291,  the  bankruptcy  or  insolvency 
of  the  maker  alone  will  not:  Crossen  v.  Hutchinson,  9  Mass. 
Rep.  205;  Sandford  v.  Dillaway,  10  lb.  52;  Granite  Bank  v. 
Ayers,  16  Pick.  392.  It  was  the  duty  of  the  plaintiff  to  have 
made  a  demand  of  Lancaster  at  least,  if  no  more,  in  order  to 
charge  the  defendant  as  indorser. 

The  amendment  in  question  was  improperly  admitted.  By 
it  a  new  and  different  cause  of  action  was  introduced  into  the 
declaration.  At  least,  it  does  not  appear  that  the  ground  of 
action  in  the  amended  count  is  the  same  as  that  in  the  original 
count.     It  is  not  to  be  inferred,  from  anything  stated  in  the 


118  DUTIES    OF    THE    HOLDER. 

case,  that  it  is  the  same  in  both  counts;  but,  on  the  contrary, 
I  the  causes  of  action  are  entirely  different.  In  the  original 
count  the  ground  of  action  is  the  liability  of  the  defendant  as 
indorser  of  a  note,  not  given  upon  the  consideration  of  the 
sale  of  the  stage  property,  but  upon  some  other  and  different 
consideration;  while  the  promise  alleged  in  the  amended  count 
is  based  upon  the  sale  of  the  stage  property  to  the  defendant. 
The  contracts  set  forth  in  the  two  counts  are,  therefore,  not 
the  same.  Such  an  amendment  of  the  declaration  is  not  in 
accordance  with  the  decisions  of  this  Court  upon  that  subject, 
is  uoi  admissible:  Butterfield  v.  Harvell,  3  N.  II.  Rep.  201; 
Stevenson  v.  Mudgett,  10  lb.  338;  Merrill  v.  Russell,  12  lb. 
74.  According  to  the  provisions  of  the  case  there  must  be  judg- 
ment for  the  defendant. 


MUSSON  v.  LAKE. 
4  Howard,  262.     1845. 

Lake  was  sued  as  indorser  of  the  following  bill  of  exchange : 

"Vicksburg,  17  December,  1836. 
''Exchange  for  $6,133. 

"Twelve  months  after  first  day  of  February,  1837,  of  this 
first  of  exchange  (second  of  the  same  tenor  and  date  unpaid), 
pay  to  the  order  of  R.  H.  &  J.  H.  Crump  six  thousand,  one 
hundred  and  thirty-three  dollars,  value  received,  and  charge 
the  same  to  account  of 

Steele,  Jenkins  &  Co." 
"To  Kirkman,  Rosser  &  Co., 

New  Orleans. ' ' 
"Indorsed:  R.  H.  &  J.  H.  Crump, 

W.  A.  Lake." 
"Kirkman,  Rosser  &  Co.,  New  Orleans,  3d  February,  1838, — 
protested  for  non-payment. 

A.  Mazureau,  Not.  Pub." 

It  being  admitted,  that  Vicksburg,  where  said  bill  bore  date, 
was  in  the  State  of  Mississippi,  and  New  Orleans,  the  place  of 
payment,  was  in  the  State  of  Louisiana,  the  plaintiffs  then 
offered  to  read  in  evidence  to  the  jury,  the  protest  of  said  bill  of 


MUSSON   v.    LAKE.  119 

exchange;  which  protest,  thus  offered  to  be  read,  is  in  the  words 
and  figures  following,  to-wit : — 

United  States  op  America,  State  of  Louisiana. 

By  this  public  instrument,  protest,  be  it  known,  that  on  the 
third  day  of  February,  in  the  year  one  thousand  eight  hundred 
and  thirty-eight,  at  the  request  of  the  Union  Bank  of  Louisiana, 
holder  of  the  original  draft,  whereof  a  true  copy  is  on  the  re- 
verse hereof  written,  I,  Adolphe  Mazureau,  a  notary  public  in 
and  for  the  city  and  parish  of  New  Orleans,  State  of  Louisiana 
aforesaid,  duly  commissioned  and  sworn,  demanded  payment 
of  said  draft,  at  the  counting-house  of  the  acceptors  thereof, 
and  was  answered  by  Mr.  Kirkman  that  the  same  could  not  be 
paid. 

Whereupon  I,  the  said  notary,  at  the  request  aforesaid,  did 
protest,  and  by  these  presents  do  publicly  and  solemnly  pro- 
test, as  well  against  the  drawer  or  maker  of  the  said  draft,  as 
against  all  others  whom  it  doth  or  may  concern,  for  all  ex- 
change, re-exchange,  damages,  costs,  charges,  and  interests,  suf- 
fered or  to  be  suffered  for  want  of  payment  of  the  said  draft. 

Thus  done  and  protested,  in  the  presence  of  John  Cragg  and 
Henry  Frain,  witnesses. 

In  testimony  whereof,  I  grant  these  presents  under  my  signa- 
ture, and  the  impress  of  my. seal  of  office,  at  the  city  of  New 
Orleans,  on  the  day  and  year  first  herein  written. 

[l.  s.]  A.  Mazureau,  Notary  Public. 

But  the  defendant  objected  to  said  protest,  and  the  copy  of 
the  bill  on  the  reverse  side  thereof  written  being  read  in  evi- 
dence to  the  jury,  on  the  ground  that  it  was  not  stated  in  said 
protest  that  the  notary  presented  said  bill  of  exchange  to  the 
acceptors,  or  either  of  them;  or  had  it  in  his  possession  when 
he  demanded  payment  of  the  same. 

And  that  for  this  alleged  defect,  which  it  was  insisted  could 
not  be  supplied  by  other  proof,  the  said  protest  was  invalid 
and  void  upon  its  face,  and  could  not  be  received  as  evidence 
of  a  legal  presentment  of  the  bill  for  payment,  or  of  the  dis- 
honor of  the  bill.  And,  thereupon,  on  the  question  whether 
the  said  protest  could  be  read  to  the  jury,  as  evidence  of  a  legal 
presentment  of  the  bill  for  payment,  or  of  the  dishonor  of  said 
bill,  the  judges  were  opposed  in  opinion.  Which  is  ordered  to 
be  certified  to  the  Supreme  Court  of  the  United  States  for  their 
decision. 

J.  McKinley.      [l.  s.] 
J.  Gholson.        [l.  s.] 


120  DUTIES    OF    THE    HOLDER. 

Pbb  Curiam  : — The  plaintiffs  brought  an  action  of  assumpsit, 
in  the  Circuit  Court  of  the  United  States  for  the  Southern  Dis- 
trict of  Mississippi,  againsl  the  defendant,  as  indorser  of  a  bill 
of  exchange,  drawn  at  Vicksburg,  in  said  state,  by  Steele,  Jenk- 
ins &  Co.,  for  $6,133,  payable  twelve  months  after  the  first  day 
of  February,  1837,  to  R.  II.  &  J.  II.  Crump;  and  addressed 
lo  Kirk-man,  Rossrr  &  Co.,  at  New  Orleans,  and  by  them  after- 
wards accepted,  and  indorsed  by  the  payees  and  the  defendant. 

On  the  trial  of  the  cause,  the  plaintiffs  offered  to  read  as 
evidence  to  the  jury  a  protest  of  the  bill  of  exchange,  to  the 
reading  of  which  the  defendant  objected;  because  it  did  not 
appear  in  the  protest,  thai  the  notary  had  presented  the  bill  to 
the  acceptors,  or  either  of  them,  when  he  demanded  payment 
thereof.  And  upon  the  question,  whether  the  protest  ought 
to  be  read  to  the  jury  as  evidence  of  a  presentment  of  the  bill 
to  the  acceptors  for  payment,  or  as  evidence  of  the  dishonor  of 
the  bill,  the  judges  were  opposed  in  opinion.  Which  division 
of  opinion  they  ordered  to  be  certified  to  this  court;  and  upon 
that  certificate  the  question  is  now  before  us  for  determination. 

The  indorser  of  a  bill  of  exchange,  whether  payable  after 
date  or  after  sight,  undertakes  that  the  drawee  will  pay  it,  if 
the  holder  present  it  to  him  at  maturity  and  demand  payment; 
and  if  he  refuse  to  pay  it,  and  the  holder  cause  it  to  be  pro- 
tested, and  due  notice  to  be  given  to  the  indorser,  then  he 
promises  to  pay  it.  All  these  conditions  enter  into  and  make 
part  of  the  contract  between  these  parties  to  a  foreign  bill  of 
exchange ;  and  the  law  imposes  the  performance  of  them  upon 
the  holder,  as  conditions  precedent  to  the  liability  of  the  indorser 
of  the  bill.  A  presentment  to  and  demand  of  payment  must 
be  made  of  the  acceptor  personally,  at  his  place  of  business  or 
his  dwelling.  (Story  on  Bills,  §  325.)  Bankruptcy,  insolvency, 
or  even  the  death  of  the  acceptor  will  not  excuse  the  neglect  to 
make  due  presentment;  and  in  the  latter  case  it  should  be  made 
to  the  personal  representatives  of  the  deceased.  (Chitty  on 
Bills,  7th  London  ed.,  246,  247;  Story  on  Bills,  360;  5  Taunt. 
R.,  30;  12  Wend.  R.,  439;  2  Douglass,  515;  Warrington  v.  Fur- 
bor,  8  East.,  245;  Esdaile  v.  Sowerby,  11  East,  117;  14  East, 
500.) 


MUSSON    v.    LAKE.  121 

The  reasons  why  presentments  should  be  made  to  the  drawee 
are: 

1st.     That  he  may  judge  of  the  genuineness  of  the  bill ; 

2nd.  That  he  may  judge  of  the  right  of  the  holder  to  re- 
ceive the  contents;  and 

3rd.  That  he  may  obtain  immediate  possession  of  the  bill 
upon  paying  the  amount. 

The  acceptor  has  a  right  to  see  that  the  person  demanding 
payment  has  a  right  to  receive  it,  before  he  is  bound  to  answer 
whether  he  will  pay  it  or  not ;  for,  notwithstanding  his  accep- 
tance, it  may  have  passed  into  other  hands  before  its  maturity. 
And  he,  as  well  as  the  drawee,  has  a  right  to  the  possession  of 
the  bill,  upon  paying  it,  to  be  used  as  a  voucher  in  the  settle- 
ment of  accounts  with  the  drawer.  (Story  on  Bills,  §  361;  Han- 
sard v.  Robinson,  7  Barn.  &  Cressw.,  90.) 

Mr.  Justice  Story  has  given  the  form  of  a  protest  now  in 
use  in  England,  in  his  treatise  on  bills  of  exchange,  by  which 
it  will  be  seen  that  the  words  "did  exhibit  said  bill"  are  used, 
and  a  blank  is  left  to  be  filled  up  with  "the  presentment,  and 
to  whom  made,  and  the  reason,  if  assigned,  for  non-payment." 
(Story  on  Bills,  302,  note.)  This,  with  the  authorities  already 
referred  to,  shows  that  the  protest  should  set  forth  the  present- 
ment of  the  bill,  the  demand  of  payment,  and  the  answer  of  the 
drawee  or  acceptor.  The  holder  of  the  bill  is  the  proper  person 
to  make  the  presentment  of  it  for  payment  or  acceptance.  ( Story 
on  Bills,  §  360.)  But  the  law  makes  the  notary  his  agent  for 
the  purpose  of  presenting  the  bill,  and  doing  whatever  the  holder 
is  bound  to  do  to  fix  the  liability  of  the  indorser.  Every  thing, 
therefore,  that  he  does  in  the  performance  of  his  duty  must 
appear  distinctly  in  his  protest.  He  is  the  officer  of  a  foreign 
government;  the  proceeding  is  ex  parte;  and  the  evidence  con- 
tained in  the  protest  is  credited  in  all  foreign  courts.  (Chitty 
on  Bills,  215 ;  Rogers  v.  Stephens,  2  T.  R.,  713 ;  Brough  v.  Park- 
ings, 2  Ld.  Raym.,  993;  Orr  v.  Maginnis,  7  East,  359;  Ches- 
mer  v.  Noyes,  4  Camp.,  129.)  The  evidence  contained  in  the 
protest  must,  therefore,  stand  or  fall  upon  its  own  merits.  It 
rests  upon  the  same  footing  with  parol  evidence ;  and  if  it  fails 
to  make  full  proof  of  due  diligence  on  the  part  of  the  plaintiff , 
it  must  be  rejected. 


122  DUTIES    OF    THE    HOLDER. 

But  Hie  counsel  for  the  plaintiffs  insists,  that  the  statute  of 
Louisiana,  and  the  interpretation  given  to  it  by  the  Supreme 
Court  of  that  state  in  the  ease  of  Nott's  Executor  v.  Beard  (16 
Louisiana  30S),  have  so  changed  the  law  merchant,  as  to  rei  I  r 
unnecessary  the  presentmenl  of  a  foreign  bill  for  payment.  After 
a  careful  examination  of  the  opinion  of  the  court  in  that  case, 
we  are  unable  to  perceive  any  intention  manifested  to  depart 
from  the  settled  usages  of  the  law  merchant;  hut,  on  the  con- 
trary, they  attempt  by  argumenl  and  authority  to  bring  the 
case  within  that  law.  The  question  before  that  court  was  the 
identical  question  now  before  us.  The  protest  was  objected  to 
because  it  did  not  show  that  the  hill  had  been  presented  by  the 
notary  to  the  acceptors  for  payment.  To  this  objection,  that 
court  said  it  mighl  perhaps  have  been  more  specific  if  in  the 
protest  it  had  been  stated  that  the  bill  was  presented,  and  pay- 
ment thereof  demanded.  And  they  admit  the  law  is  well  settled, 
that,  before  the  holder  of  an  accepted  bill  can  call  on  the  drawer 
for  payment,  he  must  make  a  presentment  for,  or  demand  of, 
payment,  and  give  notice  of  the  refusal.  Here,  then,  is  a  def- 
inite proposition,  asserting  that  a  presentment  for  payment  and 
a  demand  of  payment  are  convertible  terms,  and  that  the  proof 
of  either  would  be  sufficient, 

To  support  this  proposition,  they  refer  to  Chitty  on  Bills, 
and  Bayley  on  Bills,  and  the  annotations  on  them.  And  as 
further  proof  and  illustration,  and  to  show  that  demand  of  pay- 
ment should  be  preferred  to  presentment  for  payment,  they 
refer  to  the  statute  of  Louisiana,  passed  in  1827,  in  which 
they  say  the  word  demand  is  used  in  it,  and  that  the  word  pre- 
sentment is  not;  and  they  refer  to  the  statute,  also,  to  show  that 
notaries  were  vested  with  certain  powers  by  it,  which  gave 
authority  to  their  acts,  and  that  they  being  public  officers,  the 
presumption  of  law  is,  that  they  do  their  duty;  and  therefore, 
if  the  protest  were  defective,  and  liable  to  the  objection  urged 
against  it,  this  presumption  of  law  would  cover  all  such  defects. 
This  is  substituting  presumption  for  proof,  in  violation  of  all 
the  rules  of  evidence. 

With  all  due  respect  for  that  distinguished  tribunal,  we  are 
constrained  to  dissent  from  the  general  proposition  they  have 
laid  down  on  the  subject  of  demand  and  presentment,  and  from 


MUSSON   v.    LAKE.  123 

all  their  reasoning  in  support  of  it.  Due  diligence  is  a  ques- 
tion of  law;  and  we  think  we  have  shown,  by  abundant  authority, 
that  the  holder  of  an  accepted  bill,  to  fix  the  liability  of  the 
drawer  or  indorser,  must  present  it  to  the  acceptor  and  de- 
mand payment  thereof.  It  may  be  well  here  to  repeat  what  Ld. 
Tenterden,  C.  J.,  said  on  the  subject,  in  delivering  the  judg- 
ment of  the  Court  of  King's  Bench,  in  the  case  of  Hansard  v. 
Robinson,  before  referred  to.  He  said, — "The  general  rule 
of  the  English  law  does  not  allow  a  suit  by  the  assignee  of  a 
chose  in  action.  The  custom  of  merchants,  considered  as  part  of 
the  law,  furnishes  in  this  case  an  exception  to  the  general  rule. 
What,  then,  is  the  custom  in  this  respect?  It  is,  that  the  holder 
of  the  bill  shall  present  the  instrument,  at  its  maturity,  to  the 
acceptor,  demand  payment  of  its  amount,  and,  upon  receipt  of 
the  money,  deliver  up  the  bill.  The  acceptor  paying  the  bill 
has  a  right  to  the  possession  of  the  instrument  for  his  own  se- 
curity, and  as  his  voucher,  and  discharge  pro  tanto,  in  his 
account  with  the  drawer.  If,  upon  an  offer  of  payment,  the 
holder  should  refuse  to  deliver  up  the  bill,  can  it  be  doubted 
that  the  acceptor  might  retract  his  offer,  or  retain  his  money?" 
This  extract,  we  think,  furnishes  a  full  answer  to  all  that  has 
been  said  by  the  Supreme  Court  of  Louisiana  to  prove  that  it 
is  not  necessary  to  present  the  bill  to  the  acceptor  for  payment ; 
and  to  the  presumption  of  law  relied  on  to  cure  the  defects  in 
the  protest. 

But  to  show,  that,  by  the  statute  of  Louisiana,  the  present- 
ment of  a  bill  to  the  acceptor  for  payment  is  not  dispensed  wrth, 
and  that  the  presentment  is,  by  a  fair  construction  of  the 
act,  as  much  within  its  true  intent  and  meaning  as  the  demand, 
we  proceed  to  examine  its  provisions.  The  principal  object  of 
the  legislature  in  passing  this  statute  seems  to  have  been,  to 
give  authority  to  notaries  to  give  notices,  in  all  cases  of  pro- 
tested bills  and  promissory  notes;  and  to  make  their  certificates 
evidence  of  such  notices.  And,  therefore,  all  that  is  said  on 
the  subject  of  the  demand  and  the  manner  of  making  it,  and 
the  other  circumstances  attending  it,  was  not  intended  as  a  new 
enactment  on  these  subjects,  but  as  inducement  to  the  powers 
conferred  on  the  notary,  which  was  the  principal  object  of  the 
statute,  as  will  appear,  we  think,  by  reading  it.     That  part  of 


124  DUTIES    OF    THE    HOLDER. 

it  which  relates  to  this  subject  is  in  these  words:  "That  all 
notaries,  and  persons  acting  as  such,  are  authorized,  in  their 
protests  of  bills  of  exchange,  promissory  notes,  and  orders  for 
the  payment  of  money,  to  make  mention  of  the  demand  made 
upon  the  drawee,  acceptor,  or  person  on  whom  such  order  or 
bill  of  exchange  is  drawn  or  given,  and  of  the  manner  and  cir- 
cumstances  of  such  demand;  and  by  certificate,  added  to  such 
protest,  to  state  the  manner  in  which  any  notices  of  protest  to 
drawers,  indorsers,  or  other  persons  interested  were  served  or 
forwarded;  and  whenever  they  shall  have  so  done,  a  certified 
copy  of  such  protest  and  certificate  shall  be  evidence  of  all  the 
notices  therein  stated." 

It  seems  to  have  been  taken  for  granted  by  the  legislature, 
that  the  notaries  knew  how  to  make  out  a  protest,  and  there- 
fore they  did  not  prescribe  the  form,  but  gave  the  substance  of 
it,  to  which  the  notary  was  required  to  add  a  certificate  of  the 
manner  in  which  he  had  given  notices,  and  when  done,  accord- 
ing to  the  statute,  a  certified  copy  of  the  protest  and  certificate 
should  be  evidence,  not  of  the  demand  and  manner  and  cir- 
cumstances of  the  demand,  but  of  the  notice  only.  This  shows 
that  the  intention  of  the  legislature,  in  passing  this  part  of  the 
statute,  was  merely  to  authorize  the  notaries  to  give  notices, 
and  to  make  the  copy  of  the  protest,  and  the  certificate  added 
to  it,  evidence  of  notice  in  the  courts  of  Louisiana.  But  inde- 
pendent of  this  view  of  the  subject,  we  think  the  language  em- 
ployed in  this  statute  includes  the  presentment  of  the  bill  for 
payment,  and  for  all  other  purposes,  as  fully  as  it  does  the 
demand  of  payment.  In  giving  construction  to  the  act,  the 
phrase,  "and  of  the  manner  and  circumstances  of  such  de- 
mand," cannot  be  rejected,  but  must  receive  a  fair  interpre- 
tation. When  taken  in  connection  with  other  parts  of  the 
statute,  what  do  these  words  mean?  The  manner  of  making 
a  demand  of  payment,  we  have  seen,  is  by  presenting  the  bill 
to  the  drawee  or  acceptor;  and  so  important  is  this  part  of  the 
proceeding,  that  the  omission  to  present  the  bill  to  the  acceptor 
will  justify  his  refusal  to  pay  it,  although  payment  be  demanded. 
The  legislature  cannot  be  presumed  to  have  intended  to  make  so 
important  a  change  in  the  law  merchant  as  that  ascribed  to  them 
by  the  counsel  for  the  plaintiffs,  without  at  the  same  time  pro- 


MUSSON   v.    LAKE.  125 

viding  some  other  mode  of  obtaining  the  acceptance  and  pay- 
ment of  bills  of  exchange,  and  of  holding  drawers  and  indorsers 
to  their  liabilities.  It  is  but  reasonable,  therefore,  to  give  the 
phrase  before  referred  to  such  construction,  if  practicable,  as 
will  leave  the  law  merchant  as  it  stood  before  the  passage  of  the 
statute,  and  carry  into  effect  the  main  intention  of  the  legisla- 
ture. This,  we  think,  may  fairly  be  done  without  doing  any 
violence  to  the  intention  or  the  language  of  the  statute. 

The  manner  of  the  demand  must,  therefore,  mean  the  pre- 
sentment of  the  bill  for  either  acceptance  or  payment;  and  the 
circumstances  of  the  demand,  we  think,  means  the  place  where 
the  presentment  and  demand  is  made,  and  the  person  to  whom 
or  of  whom  it  is  made,  and  the  answer  made  by  such  person. 
It  is  very  clear,  that  bills  payable  at  sight,  and  after  sight,  are 
within  the  meaning  of  the  statute;  because  it  provides  for  a 
demand  of  payment  of  the  acceptor  of  a  bill.  Now  how  can 
there  be  an  acceptance  of  a  bill,  without  a  presentment  for 
acceptance?  Until  the  bill  becomes  due,  payment  cannot  be 
demanded  of  the  drawee.  This  shows,  that  without  the  word 
presentment  and  the  word  demand  also,  the  plain  meaning  of 
the  statute  could  not  be  carried  into  effect.  A  bill,  payable  at 
a  fixed  period  after  its  date,  need  not  be  presented  for  accep- 
tance; it  is  sufficient  to  present  it  and  demand  payment  when 
it  arrives  at  maturity ;  but  a  bill  payable  at  sight,  or  after  sight, 
can  never  become  due  until  after  it  has  been  presented  for  ac- 
ceptance or  payment.  How  is  the  holder  or  the  notary  to  obtain 
the  acceptance  of  such  a  bill,  under  the  decision  of  the  Supreme 
Court  of  Louisiana?  Will  it  be  sufficient  to  demand  payment 
of  the  bill?  That  would  be  a  nugatory  act,  because  it  is  not 
due,  then  it  must  be  admitted,  that,  by  fair  and  necessary  con- 
struction, the  word  presentment  is  within  the  plain  meaning  and 
intention  of  the  statute,  and  that  the  bill  may  be  presented  for 
acceptance  or  for  payment,  and  therefor  neither  the  statute  nor 
the  decision  of  the  Supreme  Court  of  Louisiana  has  changed 
the  law  merchant  in  any  of  these  respects. 

There  is,  however,  another  question,  entirely  independent  of 
the  statute  and  the  decision  of  the  Supreme  Court  of  Louisiana, 
which  may  be  decisive  of  the  case  before  this  court;  and 
that  question  is,  Whether  the  contract  between  the  holder  and 


126  DUTIES    OF    THE    HOLDER. 

indorser  of  the  bill  in  controversy  is  to  be  governed  by  the  laws 
of  Louisiana,  where  the  bill  was  payable,  or  by  the  laws  of  Mis- 
sissippi, where  it  was  drawn  and  indorsed.  The  place  where 
the  contract  is  to  be  performed  is  to  govern  the  liabil- 
ities of  the  person  who  has  undertaken  to  perform  it.  The 
acceptors  resided  at  New  Orleans;  they  became  parties  to  the 
bill  by  accepting  it  there.  So  far,  therefore,  as  their  liabilities 
were  concerned,  they  were  governed  by  the  laws  of  Louisiana. 
But  the  drawers  and  indorsers  resided  in  Mississippi;  the  bill 
was  drawn  and  indorsed  there;  and  their  liabilities,  if  any,  ac- 
crued there.  The  undertaking-  of  the  defendant  was,  as  before 
stated,  that  the  drawers  should  pay  the  bill;  and  that  if  the 
holder,  after  using  due  diligence,  failed  to  obtain  payment  from 
them,  he  would  pay  it,  with  interest  and  damages.  This  part 
of  the  contract  was,  by  the  agreement  of  the  parties,  to  be  per- 
formed in  Mississippi,  where  the  suit  was  brought,  and  is  now 
depending.  The  construction  of  the  contract,  and  the  diligence 
necessary  to  be  used  by  the  plaintiffs  to  entitle  them  to  a  recov- 
ery, must,  therefore,  be  governed  by  the  laws  of  the  latter  state. 
(Story  on  Bills,  §  366;  4  Peters,  123;  2  Kent's  Comm.,  459;  13 
Mass.  R.,  4 ;  12  Wend.  R.,  439 ;  Story  on  Bills,  §  76 ;  4  Johns. 
R.,  119;  12  Johns.  R.,  142;  5  East,  124;  3  Mass.,  R.,  81;  3  Cowen, 
154 ;  1  Cowen,  107 ;  5  Cranch,  298.  See  also  Daniel  on  Negotia- 
ble Paper,  Sec.  1265;  28  N.  E.  Rep.,  515;  81  N.  Y.,  571;  57 
X.  W.  Rep.,  865;  91  Ind.,  440;  22  la.,  194;  46  N.  H.,  300;  25 
Ohio  St.,  413;  55  Minn.,  259;  47  la.,  477;  Story  on  the  Conflict 
of  Laws,  Sees.  242,  280,  281 ;  39  Ohio  St.,  63. 

Whatever,  therefore,  may  have  been  the  intention  of  the  legis- 
lature in  passing  the  statute,  and  of  the  Supreme  Court  of 
Louisiana  in  the  decision  of  the  case  referred  to,  neither  can 
affect,  in  the  slightest  degree,  the  case  before  us.  In  Missis- 
si  ppi  the  custom  of  merchants  has  been  adopted  as  part  of  the 
common  law;  and  by  that  law  and  their  statute  law,  this  case 
must  be  governed.  We  think,  therefore,  the  protest  offered  by 
the  plaintiff,  as  evidence  to  the  jury,  ought  not  to  have  been 
received  as  evidence  of  presentment  of  the  bill  to  the  acceptors 
for  payment,  nor  as  evidence  of  the  dishonor  of  the  bill ;  which 
is  ordered  to  be  certified  to  the  Circuit  Court  accordingly. 

Mr.  Justice  McLean  said,  "I  think  the  protest  was  evidence. 


MUSSON    v.    LAKE.  127 

The  notary  made  demand  of  payment,  at  the  maturity  of  the 
bill,  and  we  know  that  he  had  possession  of  the  bill,  from  the 
fact  of  the  protest  being  made  on  the  same  day.  Now  as  the 
notary  could  not  make  a  legal  demand  in  the  absence  of  the 
bill,  the  fair,  if  not  the  necessary,  inference  is,  that  he  had 
possession  of  the  bill  when  he  demanded  payment." 

Mr.  Justice  Woodbury  said,  "I  regret  being  compelled  to 
dissent  from  a  portion  of  the  opinion  of  the  majority  of  the 
court  which  has  just  been  pronounced.  This  I  should  be  con- 
tent to  do  without  explanation,  if  the  grounds  for  it  did  not 
appear  to  be  misunderstood.  I  do  not  question  that  a  note  should 
be  present  usually  when  payment  is  demanded  (Freeman  v. 
Boynton,  7  Mass.  R.,  483;  17  Mass.  R.,  449;  3  Metcalf,  495), 
and  that  a  written  protest  is  the  proper  evidence  to  show  a  pre- 
sentment or  demand  in  the  case  of  a  foreign  bill  of  exchange 
(8  Wheat.,  333;  Burke  v.  McKay,  2  Howard,  71).  But,  in  my 
view,  a  protest  like  this  was  competent  evidence  to  be  submitted 
to  the  jury,  in  order  that  they  might  infer  from  it  that  the 
note  was  presented  when  the  demand  was  made.  That  was  the 
point  presented  by  the  division  of  opinion  between  the  judges 
in  the  court  below.  One  held  it  was  competent  evidence  from 
which  to  make  such  an  inference,  and  the  other,  it  was  not; 
and  we  are  merely  to  decide  which  was  right. 

The  question  of  due  presentment  and  demand  is  a  mixed  one 
of  law  and  fact,  and  not  one  of  mere  law,  unless  all  the  facts 
are  first  conceded  or  agreed.  (United  States  v.  J.  Barker,  1 
Paine 's  C.  C.  R.,  156.)  This  is  an  analogy  of  the  rule  about 
notice.  (1  Peters,  583.)  In  all  cases  where  it  is  possible  for  the 
jury  on  any  reasonable  hypothesis  to  infer  a  proper  present- 
ment from  the  protest  offered,  it  is  safer  that  the  writing  should 
not  be  withdrawn  from  them,  but  go  in,  and  the  court  instruct 
the  jury  on  the  whole  evidence  what  the  law  was  on  such  facts  as 
they  might  be  satisfied  of.  Chancellor  Kent  (3  Comm.,  107) 
thinks  it  very  difficult,  in  these  mixed  questions  of  law  and 
fact  about  commercial  paper,  to  do  justice  by  any  other  course. 
In  this  case  the  jury  might  or  might  not  be  satisfied  of  the  fact 
of  the  bill  being  present  when  the  demand  was  made.  But  why 
not  let  them  pass  on  that  fact?  It  is  manifest  that  no  evil  or 
danger  would  result  from  leaving  the  matter  to  them,  under 


12S  DUTIES    OF    THE    HOLDER. 

due   instructions    from    the   court,    provided   there  he  no   legal 
obstacle  to  such  a  course. 

Il  is  conceded,  on  both  sides,  that  the  protest  is  competent 
evidence,  and  contains  enough  from  which  the  jury  could  infer 
a  demand  of  payment.  Thai  is  the  most  material  part  of  the 
notary's  duty.  It  is  not  only  so  described  in  some  elementary 
treatises,  bu1  the  duty  of  having  the  note  present,  or  of  calling 
with  it  at  the  hours  of  business  alone,  are  nol  described  sep- 
arately; but  are  involved  or  implied  in  the  general  duty  of  mak- 
ing a  demand.  Thus  Dane,  in  his  Abridgment,  Bills  of  Ex- 
change (Art.  11,  §  1),  says, — "In  making  a  protest,  three  things 
are  to  be  done, — the  noting  (The  "noting"  is  simply  the  making 
of  a  memorandum  of  what  the  notary  did  so  that  he  may  sub- 
sequently have  the  facts  upon  which  the  certificate  may  be  made. 
This  should  be  done  on  the  day  the  demand  and  presentment  are 
made.  The  certificate  of  protest  may  be  made  at  any  time. 
Dennistown  v.  Stewart,  17  How.,  606),  demanding,  and  draw- 
ing up  the  protest."  "The  material  part  is  the  making  of  the 
demand."  So  the  word  demand  is  at  times  used  as  synonymous 
with  the  word  presentment  by  Bailey.     (16  Louisiana  Rep.,  311.) 

But  the  protest  in  this  case  states  not  only  a  demand,  but 
that  payment  of  the  bill  was  refused,  and  he  had  it  in  posses- 
sion, so  as  to  make  copy  "of  the  original  draft,"  on  the  back 
of  the  protest,  or,  to  use  his  own  words,  "whereof  a  true  copy 
is  on  the  reverse  hereof  written,"  and  also  "demanded  payment 
of  said  dial't,"  and  was  answered,  "that  the  same  could  not 
be  paid." 

Under  these  expressions,  it  could  hardly  be  deemed  unfair, 
or  any  stretch  of  probability,  to  infer  that  the  bill  was  present 
at  the  demand,  and  the  more  especially  as  the  notary  knew 
it  was  his  duty  to  have  it  present,  and  does  not  state  that  any 
objection  was  made,  or  refusal  to  pay,  on  account  of  its  ab- 
sence, as  he  should  have  stated,  if  such  was  the  truth.  My 
views  do  not  differ  from  those  of  a  majority  of  this  court 
concerning  the  importance  of  having  the  principles  as  to  com- 
mercial law,  and  especially  commercial  instruments,  uniform, 
and  as  little  fluctuating  as  possible;  and  hence  as  to  them  I 
would  make  no  innovation  here.  But  our  difference  is  rather 
on   a  question  of  evidence.     Thus,  had  the  testimony  offered 


MUSSON    v.    LAKE.  129 

been  submitted  to  the  jury,  and  they  had  inferred  from  it  a 
due  presentment  of  the  note,  it  would  not  change  any  com- 
mercial principle  as  to  the  necessity  of  presentment,  but  merely 
establish  the  fact  of  presentment  here  on  evidence  deemed  by 
the  jury  to  render  that  fact  probable.  And  if  juries  should 
be  disposed  to  find  such  a  fact  on  slight  testimony,  it  would 
do  no  injury  to  commercial  paper,  or  commercial  principles, 
or  substantial  justice  between  parties,  but  merely  indicate  an 
increased  liberality  as  to  forms,  where  substance  has  been  re- 
garded ;  that  is,  where  the  vital  point  in  the  transaction  is  be- 
yond controversy,  namely,  that  payment  has  clearly  been  de- 
manded and  not  made.  Such  a  course  would  accord,  also,  in 
spirit,  with  what  was  laid  down  by  this  court  in  1  Peters,  583, 
that  rules  as  to  commercial  paper  ought  to  be  formed  and 
construed  so  as  to  be  reasonable  and  founded  in  general  con- 
venience and  with  a  view  to  clog  as  little  as  possible,  consis- 
tently with  the  safety  of  parties,  the  circulation  of  paper  of 
this  description. 

There  is  nothing  in  the  nature  of  protests  and  presentments 
which  on  principle  requires  any  increased  strictness  in  the 
proof  of  them,  but,  on  the  contrary,  much  to  justify  every 
reasonable  presumption  in  their  favor.  Any  holder  would  be 
anxious  to  get  his  money  at  once  of  the  drawee,  and  not  neg- 
lect to  have  the  note  with  him  so  as  to  give  it  up  on  pay- 
ment and  prevent  delay.  So  would  he  wish  to  be  paid  and 
excused  entirely  from  making  protest,  rather  than  resort  to 
that  and  notice,  and  suffer  the  delay  of  recovering  it  of  a 
drawer  or  indorser. 

Both  of  these  considerations  strengthen  the  inference  that 
he  and  his  agent  would  present  the  note,  or  have  it  with  them, 
when  demanding  payment,  and  render  it  reasonable,  after  slight 
proof  of  presentment,  to  leave  it  to  the  opposite  party  to  rebut 
that  inference,  so  natural,  by  stronger  proof  that  the  note  was 
not  present,  if  the  facts  would  warrant  such  proof. 

Another  consideration  against  requiring  great  or  greater  ri- 
gidity in  the  evidence  of  a  presentment  and  form  of  protest  is 
the  fact,  that  a  protest  is  of  less  materiality  than  notice. 

As  an  illustration,  that  the  notice  is  deemed  more  material 
than  the  protest,  "omitting  to  allege  in  the  declaration  a  pro- 


130  DUTIES    OF    THE    HOLDER. 

test  of  a  bill  is  only  form,  not  to  be  taken  advantage  of  on  a 
general  demurrer."  (1  Dane's  Abr.,  Bills  of  Exchange,  ch. 
20,  art.  11,  §  9;  Lill.  Ent.,  55;  3  Johns.  R.,  202;  Solomons  v. 
Staveley,  Doug.,  684,  in  note  to  Rushton  v.  Aspinall.) 

But,  omitting  to  state  a  demand  or  notice  is  bad  after  ver- 
dict.    (Doug.,  684.) 

Dane,  in  his  Abridgment  (Vol.  1,  p.  395,  ch.  20,  art  10, 
§  1),  says, — "Notice  is  very  material.  Protests  are  mere  mat- 
ter of  form."  Yet  notice  may  be  very  loose,  and  it  answers 
in  all  cases,  if  it  disclose  merely  the  fact  of  demand,  and  a  re- 
liance on  the  person  notified  for  payment.  (Shed  v.  Brett, 
1  Pick.,  401;  Miller  v.  Bank  of  United  States,  11  Wheat.,  431; 
Gilbert  v.  Dennis,  3  Mete,  495;  2  Johns.  Ch.  R.,  337;  12 
Mass.  R.,  6;  4  Wash.  C.  C.  Rep.  464.) 

"The  notice,  however,  should  inform  the  party  to  whom  it 
is  addressed,  either  in  express  terms  or  by  necessary  impli- 
cation, or,  at  all  events,  by  reasonable  intendment,  what  the 
bill  or  note  is,  that  it  has  become  due,  that  it  has  been  duly 
presented  to  the  drawer  or  maker,  and  that  payment  has  been 
refused."  (Chitty  on  Bills  (9th  Loud.  &  10th  Amer.  edit.), 
469.) 

But  it  has  again  and  again  been  held,  that  the  notice  need 
not  state  a  presentment  in  express  terms,  and  that  it  will  be 
implied  from  stating  a  demand  and  non-payment,  and  a  look- 
ing to  the  indorser.  (9  Peters,  33;  3  Kent's  Comm.,  108;  10 
Mass.  R.,  1;  4  Mason,  336;  1  Johns.  Cas.,  107.)  So,  "Your 
note  has  been  returned  dishonored,"  is  enough  from  which  to 
intend  all.  (See  various  other  illustrations,  6  Adolph.  &  Ellis, 
499;  5  Dowl.,  771;  2  Chit.  R.,  364;  2  Mees.  &  Welsb.,  109.) 

It  may  be  a  letter, — merely  to  that  effect, — and  need  not  be 
a  copy  of  the  protest.  (1  Chit.  (2d  Eng.  &  1st  Amer.  edit.), 
363,  364,  498,  499;  3  Camp.  R.,  334;  2  Starkie,  232;  Goodwin 
v.  Harley,  4  Adolph.  &  Ellis,  520,  870;  4  Eq.  R.,  48.  See  8 
Mass.  R.,  386.)  And  it  has  been  adjudged,  that  the  notice 
need  not  state,  in  express  terms,  that  the  note  was  present,  or 
if  present  was  exhibited,  if  it  only  contained  matter  from  which, 
by  reasonable  intendment,  this  can  be  inferred.  (Chitty  on 
Bills  (last  edit),  469;  2  Peters,  254;  9  Peters,  33.) 

It  not  being  necessary,  then,  to  inform  the  indorser  of  the 


MUSSON  v.  LAKE.  131 

presentment  of  the  note  itself,  in  so  many  words,  there  seems 
to  be  no  use  in  having  the  fact  stated  at  length  in  the  protest, 
if  enough  appear  to  render  the  fact  probable. 

It  would  be  difficult  to  find  a  reason,  in  the  absence  of  posi- 
tive law,  why  the  form  of  the  protest  should  not  be  dealt  by 
as  liberally  as  that  of  notice;  and  if,  like  the  other,  it  disclose 
a  demand,  allow  the  jury  to  infer  from  that,  as  in  the  case 
of  notice,  that  the  note  was  present.  Indeed,  a  protest  is  not 
required  to  be  in  writing  at  all  except  in  case  of  foreign  bills, 
drawn  on  persons  abroad.  (Chitty  on  Bills,  643;  Rogers  v. 
Stevens,  2  D.  &  E.,  713 ;  2  Starkey  on  Ev.,  232 ;  6  Wheat.,  572 ; 
8  Wheat,  333;  3  Wend.,  173;  2  Peters,  179;  1  Cranch,  205.) 

And  then  it  doubtless  originated  in  a  rule  merely  allowing 
it  to  be  done  to  save  the  expense  and  trouble  of  bringing  a 
witness  from  abroad  to  prove  the  fact,  rather  than  making  it 
imperative. 

Instead  of  a  written  protest  being  better  evidence  than  a 
witness  of  the  presentment  and  demand  in  case  of  inland  bills 
or  promissory  notes,  or  even  foreign  bills  drawn  on  persons 
here,  it  is  inferior  evidence  to  witnesses  for  proving  present- 
ment and  demand,  and  is  usually  inadmissible,  except  by  special 
statutes.  (1  Chitty  on  Bills,  405;  3  Pick.,  415;  6  Wheat,  572; 
5  Johns.  R.,  375;  4  Wash.  C.  C.  Rep.,  148;  4  Camp.  R.,  129; 
2  Howard's  U.  S.  Rep.  71;  8  Wheat.,  146.) 

Some  seem  to  suppose  that  there  is  danger  in  allowing  an 
informal  written  protest  to  go  to  the  jury  as  evidence  to  be 
weighed  in  proving  that  the  note  was  present.  But  there  can 
be  no  more  in  that  than  allowing  an  informal  notice  to  go 
to  the  jury.  The  jury  must  be  satisfied,  in  both  cases,  and 
should  so  be  instructed,  that  all  has  been  done  which  the  law 
in  both  requires.  If  there  be  any  defense  in  either  case,  that 
all  proper  has  not  been  done,  it  can  probably  be  shown  by 
counter  evidence  in  one  as  well  as  the  other.  Why  should  it 
not  be?  and  why  is  not  that  an  ample  security  against  being 
improperly  charged?  For  the  protest  is  not  a  written  contract 
between  the  parties,  or  a  sealed  instrument  not  open  to  be 
contradicted  by  parol  evidence.  But  it  is  a  mere  certificate 
of  a  notary,  a  subordinate  officer,  admitted  for  convenience 
as  prima  facie  evidence  of  certain  facts,  and  allowed  to  that 


132  DUTIES    OF   THE    HOLDER. 

extent  in  order  to  save  the  expense  of  witnesses  and  delays, 
but  ought  to  be  always  open  to  be  impaired  or  disproved  by 
the  other  party  in  interest,  who  has  never  been  heard  before 
him,  and  of  course  cannot  reasonably  be  concluded  forever 
by  his  acts.  The  notary  is  not  required  to  swear  to  them, 
when  they  are  admissible  as  evidence,  as  he  would  be  to  a 
deposition,  because  of  his  official  obligations  and  standing.  But 
the  character  and  construction  that  properly  belong  to  his 
certificate  as  evidence  seem  to  be  like  those  of  a  deposition; 
and  if  it  states,  in  so  many  words,  that  the  note  was  pre- 
sented, or  states  what  justifies  such  an  inference,  there  ap- 
pears to  be  no  good  reason  why  the  contrary  may  not  be 
proved,  if  such  was  the  fact,  and  the  indorser  be  thus  pro- 
tected against  statements  or  inferences  not  well  founded.  And 
the  absurdity  of  the  contrary  course  is  still  more  apparent  as 
to  protests,  when  one  made  by  any  respectable  merchant,  and 
attested  by  two  witnesses,  in  the  absence  of  a  notary,  has  the 
same  validity  as  his.  (Chitty  on  Bills,  ,303;  Story  on  Bills, 
§  276.) 

In  Nicholls  v.  Webb  (8  Wheat.,  336),  counter  testimony  was 
held  to  be  admissible  against  the  minutes  of  a  notary  offered 
to  prove  demand  and  notice. 

So  it  is  admissible  to  show  that  the  notary  mistook  the  place, 
and  did  not  demand  the  bill  at  the  place  of  business  of  the 
drawee.  (Insurance  Company  v.  Shamburg,  2  Martin's  R. 
(N.  S.),  513.) 

In  Vandewall  v.  Tyrrell  (Mood.  &  Malk.,  87),  counter  evi- 
dence was  offered,  and  avoided  the  protest,  because  the  clerk 
of  the  notary,  and  not  the  notary  himself,  as  stated  in  the  pro- 
test, made  the  demand.     (See  Chitty  on  Bills,  495,  note.) 

This  point  thus  being  established  on  both  principle  and  pre- 
cedent, all  the  danger  or  difficulty  as  to  the  merits  of  the  case, 
by  admitting  a  protest  like  this,  is  obviated.  But  it  is  further 
urged  against  it,  that  presentment  is  averred  in  the  declara- 
tion, and  therefore  must  be  proved.  This  we  admit.  (Chitty 
on  Bills,  643-647.)  And  so  is  notice  averred  in  the  declaration 
and  notice  of  a  presentment,  and  so  that  it  must  be  proved. 
(1  Chit.,  633;  Doug.,  654,  680.)  All  we  urge  here  is  to  let  them 
be  proved  by  similar  general  statements,  from  which  the  similar 


MUSSON  v.  LAKE.  133 

inferences  may  be  drawn  in  one  case  as  the  other,  that  the  note 
was  present  at  the  time  of  the  demand,  unless  the  contrary  is 
shown, — as  it  may  be,  if  true. 

Again,  it  is  said  that  the  forms  of  protest  generally  state, 
that  the  bill  was  present  or  exhibited.  This  is  true.  (1  Chittj-, 
395,  396  (1st  Amer.  edit.)  ;  Story  on  Bills  of  Exchange,  §  276, 
note.) 

But  we  are  aware  of  no  case  deciding  that  this  fact  must  be 
stated,  in  so  many  words,  in  the  protest  itself,  though  we  admit 
that  the  jury  must  be  satisfied  that  the  fact  existed.  Minutes 
in  the  book  of  a  messenger  deceased  have  been  held  to  be  proof 
to  be  submitted  to  a  jury  as  evidence  of  due  demand  and  no- 
tice. (Welsh  v.  Barrett,  15  Mass.  R,,  380.)  Yet  there  does 
not  appear  to  have  been  a  presentment  stated,  eo  nomine,  or 
that  there  was  any  but  inferential  evidence  that  he  had  the 
note  with  him.  (See,  also,  North  Bank  v.  Abbott,  13  Pick., 
469.)  And  it  is  not  a  little  remarkable,  that  the  only  statute 
in  England  (9  and  10  Will.,  3),  which  prescribes  the  form  of 
a  protest,  and  which  is  in  relation  to  inland  bills  of  five  pounds 
and  upwards,  in  order  to  recover  damages  and  interest,  the 
form  does  not  state  in  so  many  words  that  the  bill  was  present 
or  was  exhibited,  but  merely  "at  the  usual  place  of  abode  of 
the  said  A,  have  demanded  payment  of  the  bill,"  etc.  (Chitty 
on  Bills,  465  (9th  ed.).)  In  such  cases,  precisely  that,  and 
that  alone,  must  be  done  which  is  contended  for  here,  namely, 
leave  it  to  the  jury  to  infer  the  presence  of  the  bill  from  its 
payment  being  demanded,  and  any  other  facts  stated,  unless 
the  contrary  is  shown.  Look  at  another  analogy.  It  is  neces- 
sary that  the  exhibit  of  the  note  and  the  demand  be  made  in 
the  legal  hours  of  business.  (Chitty  on  Bills,  349,  354;  Reuben 
v.  Bennet,  2  Taunt.,  388;  2  Camp.,  537;  Parker  v.  Gordon,  7 
East,  385;  1  Maul.  &  Selw.,  20.)  But,  as  in  respect  to  the 
presence  of  the  note,  no  case  holds  that  this  must  appear  by 
so  many  words  in  the  protest.  And  it  is  not  stated,  in  the  com- 
mon forms,  that  the  demand  was  made  in  the  usual  hours  of 
business.  (1  Chitty  on  Bills,  396.)  On  the  contrary,  the  jury 
are  allowed  or  instructed  that  they  may  infer,  from  the  state- 
ment of  the  demand  and  non-payment,  that  they  were  made 


134  DUTIES    OF    THE    HOLDER. 

within  the  proper  hours.     And  if  it  was  not,  the  other  party 
would  doubtless  be  allowed  to  disprove  it  by  counter  evidence. 

How  can  such  a  ease,  then,  be  distinguished  in  principle  from 
this? — except  that  there  is  much  less  in  the  usual  form  of  pro- 
tesl  from  which  to  infer  thai  the  bill  was  presented  in  legal 
hours,  than  there  is  in  this  protest  from  which  to  infer  that 
the  bill  was  present  when  the  demand  was  made.  I  am  the  more 
inclined,  also,  to  the  opinion,  that  this  protest  is  competent  evi- 
dence, because,  under  a  special  law  in  Louisiana,  passed  .March 
13th,  1827,  such  protests  have  been  adjudged  sufficient.  Their 
law  uses  the  word  "demand"  when  describing  what  the  pro- 
test shall  contain,  and  such  a  protest  is  there  allowed  to  go  to 
the  jury  as  evidence  from  which  to  infer  that  the  note  was 
I> resent.     (Xott's  Executor  v.  Beard,  16  Louisiana  R.,  308.) 

The  bill  now  in  dispute  was  on  its  face  payable  in  Louisiana; 
and  hence  the  principles  of  commercial  law  require  that  the 
protest  be  made  at  the  time  and  in  the  manner  prescribed  by 
that  state.  (Story  on  Bills  of  Exchange,  §  176;  1  Chitty  on 
Bills,  193,  506;  Story's  Conflict  of  Laws,  §  369.) 

But  whether  the  statute  of  Louisiana  prescribing  what  pro- 
test shall  be  sufficient  ought  to  be  considered  as  affecting  any- 
thing beyond  the  evidence  of  protest  in  its  own  courts,  is  not 
very  clear  on  principle.     (See  cases,  Story  on  Bills,  §  172.) 

Hence,  in  forming  an  opinion,  I  have  placed  it  mainly  on 
general  consideration,  though  in  the  construction  of  a  Louis- 
iana statute,  which  clearly  affected  the  contract,  and  not  the 
evidence;  and  where  the  judgment  of  its  court  clearly  rested 
on  the  statute  alone,  about  which  some  doubt  exists,  it  ought 
unquestionably  to  control  us  in  respect  to  contracts  made  or 
to  be  fulfilled  there,  even,  if  a  departure  from  the  general  prin- 
ciples of  commercial  law.  I  wish,  also,  to  avert  some  serious 
consequences  that  I  apprehend  may  result  from  the  decision 
of  the  majority  of  the  court  in  several  of  the  states  of  the 
Union. 

Bills  of  exchange  drawn  in  one  state  on  persons  in  another 
must  be  considered,  under  the  previous  decisions  of  this  court, 
as  foreign  bills.  (Townsley  v.  Sumrall,  2  Peters,  179,  586,  688; 
Lonsdale  v.  Brown,  4  Wash.  C.  C.  R.,  87,  153;  1  Hill,  44;  12 
Pick.,  283;  15  Wtend.,  527;  5  Johns.,  375;  Dickins  v.  Beal,  10 


MUSSON  v.  LAKE.  135 

Peters,  579.)  Demand  of  payment,  then,  cannot  be  proved  in 
suits  upon  them  out  of  the  state  where  presented,  unless  by  a 
written  protest,  according  to  the  cases  before  cited. 

Whenever  the  protest,  then,  in  such  case,  does  not  state  in 
detail  a  presentment  or  presence  of  the  bill,  though  stating  a 
demand,  refusal,  and  no  objection,  the  protest  must,  as  in  this 
decision,  be  ruled  out  as  incompetent  evidence;  and  the  same 
decision  virtually  implies,  that  no  other  evidence  except  the 
written  protest  is  admissible  to  show  that  fact,  or  indeed  any 
fact  which  may  be  omitted  by  accident  or  otherwise  in  the 
written  protest,  and  that  no  inference  can  be  admitted  to  be 
drawn  from  the  protest  as  to  presentment,  when  only  a  de- 
mand, refusal,  and  no  objection  are  stated,  as  here.  These  con- 
sequences, with  others  before  named,  I  would  avoid,  by  making 
the  protest  competent  evidence,  and  when  it  showed  a  de- 
mand, refusal,  and  no  objection  explicitly,  as  here,  would 
leave  it  to  the  jury,  from  that  and  the  other  circumstances,  to 
say  whether  they  were  or  were  not  satisfied  that  the  note  was 
present. 

In  this  way  it  is  easy  to  reconcile  full  action  of  the  jury 
on  the  facts  with  that  of  the  court  on  the  law,  and  this,  too, 
without  any  innovation  or  change  in  the  rule  as  to  commer- 
cial paper,  or  any  violation  of  adjudged  cases,  but  rather  in 
conformity  to  them  and  to  several  strong  analogies. 

This  court  have  in  other  cases  gone  still  further,  and  held 
it  proper  even  to  expand  or  enlarge  the  rules  of  evidence  in 
certain  exigencies.  In  Nicholls  v.  Webb  (8  Wheat.,  332),  the 
principle  laid  down  by  Ld.  Ellenborough,  in  Pritt  v.  Fair- 
clough  (3  Camp.  R.,  305),  as  to  the  rules  of  evidence,  was 
adopted,  namely,  "That  they  must  expand  according  to  the 
exigencies  of  society."  And  in  the  Bank  of  Columbia  v.  Law- 
rence (1  Peters,  583),  speaking  of  a  rule  as  to  diligence,  Thomp- 
son, J.,  says, — "For  the  sake  of  general  convenience  it  has  been 
found  necessary  to  enlarge  this  rule. ' ' 

But  all  I  ask  here  is  to  go  as  far  as  the  existing  rule  of 
evidence  seems  to  justify,  and  let  reasonable  inferences  and  pre- 
sumptions be  made  by  the  jury  from  all  that  is  stated  in  the 
protest,  and  thus  decide  whether  the  note  was  not  probably 
present  when  the  demand  was  made. 


136  DUTIES    OF    THE    lluLDER. 

SALT  SPRINGS  NATIONAL  BANK  v.  BURTON. 

58  N.  Y.  430.     1874. 

Appeal  from  judgment  of  the  general  term  of  the  Supreme 
Court  in  the  fourth  judicial  department,  affirming  a  judgment 
in  favor  of  plaintiff  entered  upon  the  decision  of  the  Court 
upon  trial  at  circuit  without  a  jury. 

This  action  was  brought  upon  a  promissory  note  made  by 
defi  udant  Phelan  and  indorsed  by  defendant  Burton,  who  alone 
defended.  The  note  was  made  payable  at  the  First  National 
Bank  of  Waterloo. 

The  Court  found  the  following  facts,  among  others:  That 
it  was  the  ordinary  custom  of  said  hank  to  commence  its  busi- 
ness at  nine  o'clock  in  the  forenoon  of  the  day  and  to  close  the 
same  at  four  o'clock  in  the  afternoon;  that  on  the  day  said 
note  fell  due  the  defendant  Burton  was  ready  to  pay  the  same, 
and  sent  Phelan,  the  maker  of  the  note,  to  said  bank  several 
times  during  banking  hours  to  see  if  said  note  was  there  and 
ascertain  the  amount  of  the  same.  hut.  lie  was  informed  each 
time  that  the  note  was  not  in  the  bank;  that  on  said  day 
Thomas  J.  Leach,  the  cashier  id'  the  plaintiff,  went  to  ^Yaterloo, 
having  said  note  in  his  possession,  hut  did  not  arrive  there  till 
about  five  o'clock  in  the  afternoon.  lie  went  to  the  said  bank 
and  obtained  entrance.  He  found  therein  Myndert  I).  .Mercer, 
who  was  the  cashier  of  said  hank  and  also  a  notary  public. 
II,.  then  and  there  presented  to  said  Mercer  said  note  and  de- 
manded payment  thereof,  and  payment  was  refused  for  the 
reason  that  no  funds  had  been  left  with  the  bank  to  pay  the 
same;  thereupon  said  Mercer  protested  said  note.  This  was 
the  firsl  time  that  said  note  was  presented  to  said  bank  for 
payment  on  that  day. 

As  a  conclusion  of  law,  the  Court  held  the  defendant  Burton 
liable  and  directed  judgment  for  the  amount  of  the  note. 

Kaiwu.o,  .1.  When  a  note  is  made  payable  at  a  bank,  the 
general  rule  is  that  in  order  to  charge  the  indorser  the  note 
should  he  presented  for  payment  at  the  bank  during  its  cus- 
tomary business  hours.  \'^v  if  the  holder  goes  to  the  bank  after 
those   hours  and   finds   it    closed   or  no  one  there  authorized  to 


SALT    SPRINGS    NAT.   BANK    V.    BURTON.  137 

answer  to  the  demand,  he  can  make  no  valid  demand  and  the 
indorser  will  be  discharged:  Parker  v.  Gordon,  7  East.  385; 
Byles  on  Bills,  205,  206.  In  other  cases  the  holder  has  the 
whole  day  to  present  the  bill  or  note,  the  only  limitation  being 
that  he  must  present  it  at  a  reasonable  hour,  and  this  may 
depend  upon  the  circumstances  of  the  case :  Wilkins  v.  Jadis, 
2  B.  &  Ad.  188.  But  even  in  the  case  of  paper  payable  at 
bank,  if  after  business  hours  the  holder  obtains  admittance  and 
finds  in  the  bank  a  person  authorized  to  answer,  a  demand  of 
such  person  and  refusal  for  want  of  funds  will  in  general 
be  sufficient :  Bank  of  Syracuse  v.  Hollister,  17  New  York,  46 ; 
Byles  on  Bills,  212  (ed.  of  1836)  ;  Shepherd  v.  Chamberlain,  8 
Gray,  225 ;  Flint  v.  Rogers,  15  Maine,  67 ;  Allen  v.  Avery,  47  lb. 
287 ;  Henry  v.  Lee,  2  Chitty,  124 ;  Garnett  v.  Woodcock,  1  Stark, 
475. 

In  the  present  case  the  customary  business  hours  of  the  bank 
at  which  the  note  was  payable  ended  at  four  o'clock  p.  m.  The 
note  was  not  brought  there  for  presentation  until  five  p.  m., 
but  the  holder  was  then  admitted  into  the  bank,  and  there 
found  the  cashier,  of  whom  he  demanded  payment,  which  was 
refused  on  the  ground  that  no  funds  had  been  left  with  the 
bank  to  pay  the  same.  The  only  question  raised  in  the  case  is 
as  to  the  sufficiency  of  that  demand  under  the  special  circum- 
stances. 

It  is  not  disputed  that  the  cashier  was  a  proper  person  of 
whom  to  make  the  demand,  but  it  is  considered  on  the  part  of 
the  appellant  that  there  exists  a  feature  in  this  case  which  dis- 
tinguishes it  from  all  those  in  which  a  demand  after  business 
hours  has  been  held  sufficient,  viz.,  that  up  to  the  close  of  busi- 
ness hours  on  the  day  of  the  maturity  the  indorser  had  been 
endeavoring  to  find  the  note  for  the  purpose  of  paying  it,  but 
that  it  was  not  at  the  bank,  and  it  is  claimed  that  if  it  had  been 
presented  at  the  bank  during  business  hours  it  would  have  been 
paid.  This  claim  is  founded  upon  the  finding  of  the  Court 
that  on  the  day  the  note  fell  due  the  indorser  was  ready  to  pay 
it,  and  sent  the  maker  to  the  bank  several  times  during  banking 
hours  to  see  if  the  note  was  there  and  ascertain  the  amount  of  the 
same,  but  was  informed  each  time  that  the  note  was  not  in  the 
bank. 


IMS  DUTIES    OF    THE    HOLDER. 

It  was  stipulated  on  the  trial  that  these  inquiries  were  made 
t,,  enable  the  indorser  to  pay  the  note,  and  that  they  were  con- 
tinued up  to  the  time  the  hank  closed,  and  we  think  the  fair 
interpretation  of  the  finding  is  that  Burton,  the  indorser,  had 
the  funds  wherewith  to  pay  the  note  and  endeavored  to  do  so, 
Init  was  prevented  by  the  failure  of  the  holder  to  present  the 
note  at  the  hank  during  business  hours.  The  question  now  be- 
fore us  is  whether  those  facts  make  the  case  an  exception  to  the 
general  rule  thai  a  valid  demand  can  be  made  after  business 
hours  if  the  holder  obtains  admittance  into  the  hank  and  there 
finds  a  person  authorized  to  answer  to  the  demand. 

Had  the  maker  gone  to  the  hank  prepared  to  pay  the  note,  and 
waited  there  for  thai  purpose  until  the  close  of  business  hours 
and  then  left,  or  had  he  placed  funds  in  the  bank  and  allowed 
them  to  remain  there  until  the  close  of  business  hours,  and  then 
withdrawn  them  in  consequence  of  the  non-presentation  of  the 
note,  we  are  of  opinion  that  a  subsequent  presentation  for  pay- 
ment would  not  have  keen  sufficient  to  charge  the  indorser.  The 
leading  English  case  upon  this  subject  is  Parker  v.  Gordon,  7 
East.  387,  decided  in  1806,  in  which  Lord  Ellenborough  says : 
"If  a  party  choose  to  take  an  acceptance,  payable  at  an  ap- 
pointed place,  it  is  to  he  presumed  that  he  will  inform  himself 
of  the  proper  time  for  receiving  payment  at  such  place,  and  he 
must  apply  accordingly,  and,  if  by  going  there  out  of  due  time 
the  bill  be  not  paid,  it  is  his  own  fault,  and  he  cannot  proceed  as 

upon  a  dishonor  of  it It  is  fishing  for  the  dishonor 

of  a  bill  made  payable  at  a  banker's  to  present  it  there  for  pay- 
ment at  a  time  when  it  is  known,  in  the  usual  course  of  busi- 
ness, that  it  cannot  he  paid." 

This  decision  was  followed  in  1813,  in  Elford  v.  Teed,  1  Maule 
&  Selw.  28,  where  the  business  hours  of  a  bank  are  compared  to 
the  horae  juridicae  of  the  Courts  of  Justice. 

The  first  case  in  which  this  rule  was  qualified  is  Garnett  v. 
Woodcock,  1  Starkie,  475,  where  Lord  Ellenborough,  in  1816, 
held,  at  nisi  prius,  that  a  presentment  at  a  banker's  after  bank- 
ing hours  was  sufficient,  provided  a  person  was  stationed  there 
by  the  banker  to  return  an  answer. 

Upon  these  cases  are  founded  all  those  which  follow  upon  the 


SALT    SPRINGS   NAT.   BANK   v.   BURTON.  139 

subject  of  the  presentment  of  commercial  paper  made  payable  at 
a  bank. 

It  is  to  be  observed  that  in  the  two  cases  first  cited  (Parker 
v.  Gordon  and  Elford  v.  Teed)  the  action  was  brought  by  the 
indorsee  of  a  bill  of  exchange  against  the  drawer,  and  the  drawer 
was  held  to  be  discharged  by  the  failure  to  present  the  bill  dur- 
ing business  hours;  while  in  the  last  case  (Garnett  v.  Wood- 
cock) the  action  was  against  the  acceptor.  In  this  State,  where 
a  note  or  bill  is  payable  at  a  particular  time  and  place,  a  de- 
mand at  the  place  appointed  is  not  necessary  to  sustain  an  action 
against  the  acceptor  or  maker:  Wolcott  v.  Van  Santvoord,  17 
Johns.  248 ;  Caldwell  v.  Cassidy,  8  Cow.  271.  But  in  England, 
at  the  time  of  the  decision  in  Garnett  v.  "Woodcock  (though  since 
changed  by  statute),  such  demand  was  necessary:  Bowes  v. 
Howe,  5  Taunt.  30;  Sanderson  v.  Bowes,  14  East.  500;  Dickin- 
son v.  Bowes,  16  lb.  108 ;  Rowe  v.  Young,  2  B.  &  B.  165 ;  s.  c,  2 
Bligh,  391 — a  doctrine  to  which  Lord  Ellenborough  had  been, 
individually,  decidedly  adverse:  Lyon  v.  Sundius,  1  Camp.  N. 
B.  423.  The  presentment  in  Garnett  v.  Woodcock,  was  at  eight 
in  the  evening,  to  a  boy,  who  replied  that  he  had  no  orders,  and 
this  was  held  by  Lord  Ellenborough  sufficient,  in  an  action 
against  the  acceptor.  But  had  the  action  been  against  the 
drawer,  and  had  he  shown  that  the  acceptor  had  funds  and  would 
have  paid  the  bill  in  case  it  had  been  presented  during  business 
hours,  the  decision  would  probably  have  been  different.  In  The 
Bank  of  Syracuse  v.  Hollister,  17  N.  Y.  46,  where  the  present- 
ment was  out  of  business  hours,  stress  is  laid  upon  the  facts 
that  no  person  had  inquired  for  the  note  during  business  hours, 
and  that  the  maker  had  no  funds  in  the  bank,  and  in  none  of 
the  cases,  where  a  demand  out  of  business  hours  has  been  sus- 
tained, does  it  appear  that  any  effort  had  been  made  to  pay  the 
note,  except  in  the  case  of  The  Bank  of  Utica  v.  Smith,  18  J.  R. 
230,  and  Newark  India  Rubber  Mfg.  Co.  v.  Bishop,  3  E.  D. 
Smith,  48.  The  case  in  18  Johnson  was  decided  upon  the  ground 
that  the  presentment  was  in  fact  made  during  business  hours, 
and  that  the  person  having  the  funds  should  have  waited  the 
customary  fifteen  minutes  after  three,  during  which  the  bank 
was  kept  open  for  the  presentment  of  paper.  The  case  in  3  E. 
D.  Smith  presents  the  very  point  which  arises  in  the  one  now  at 


140  DUTIES    OF    THE    HOLDER. 

bar.  and  affords  a  clear  illustration  of  it.  That  was  an  action 
against  two  indorsers  of  a  note,  payable  at  hank.  One  of  the 
indorsers  (Bishop)  placed  funds  in  the  hands  of  the  paying 
teller  for  the  purpose  of  paying  the  note.  These  funds  were  not 
deposited  to  the  credit  of  the  maker,  nor  entered  on  the  books 
of  the  bank;  the  teller  was  the  agent  simply  of  Bishop,  the  in- 
dorser,  to  pay  the  note  if  regularly  presented.  The  teller  re- 
mained at  the  bank  until  the  close  of  business  hours,  and  then 
left,  the  note  not  having  been  presented.  After  he  had  left  the 
note  was  presented,  and  a  clerk,  being  still  there,  examined  the 
account  of  the  maker,  and  not  finding  sufficient  funds  to  his 
credit,  answered,  no  funds.  Bishop  afterward,  finding  that  the 
note  had  not  been  presented  during  business  hours,  withdrew  the 
funds  which  he  had  placed  in  the  hands  of  the  paying  teller. 

A  verdict  having  been  rendered  against  both  indorsers,  "Wood- 
ruff, J.,  refused  to  set  it  aside  as  to  Bishop,  but  did  set  it  aside 
as  to  the  other  indorser,  and  afterward,  in  a  very  clearly  reasoned 
opinion,  delivered  at  general  term,  demonstrated  the  justice  of 
his  conclusion. 

As  to  Bishop,  he  had  himself  undertaken  to  pay  the  note,  and 
on  learning  that  it  had  not  been  duly  presented,  withdrew  the 
funds  which  he  had  appropriated  to  its  payment.  But  as  to  the 
other  indorser,  the  case  was  different.  If  the  note  had  been  pre- 
sented within  the  usual  business  hours,  it  would  have  been  paid 
out  of  funds  provided  either  by  the  maker  or  the  first  indorser  in 
his  behalf,  and  the  second  indorser  would  have  been  discharged. 
It  was  by  the  omission  of  the  holder  thus  to  present  it,  and  from 
that  cause  alone,  that  the  note  was  not  paid  at  its  maturity. 
The  second  indorser  should  not  be  held  under  those  circum- 
stances. In  the  case  at  bar,  the  finding  is  not  that  the  maker 
was  ready  to  pay,  but  that  the  defendant,  the  indorser,  was 
endeavoring  to  pay  the  note.  If  he  was  provided  with  funds 
for  that  purpose  he  must  have  retained  them.  He  knew  that 
the  note  was  not  paid,  and  did  not  expect  the  maker  to  pay  it, 
but  had  himself  undertaken  to  do  so.  Under  these  circumstances, 
his  readiness  to  pay  does  not,  in  our  judgment,  distinguish  the 
case  from  that  of  The  Bank  of  Syracuse  v.  Hollister,  and  those 
upon  which  it  was  based.  The  defendant  cannot  have  sustained 
any  injury,  unless  it  be  the  expenses  of  protest,  which  are  trifling, 


CARTER  v.  THE  UNION  BANK.  141 

and  about  which  no  point  seems  to  have  been  made  at  the  trial. 
The  judgment  should  be  affirmed,  with  costs. 

Judgment  affirmed. 


CARTER  v.  THE  UNION  BANK. 

7  Humph.    (Tenn.)    548,     1847. 

Green.  J.  This  is  an  action  against  the  plaintiff  in  error 
as  the  indorser  of  a  bill  of  exchange  drawn  in  Memphis,  Ten- 
nessee, by  Arthur  Bowen,  on  Fort  &  Wilcox,  New  Orleans,  in 
favor  of  plaintiff  in  error,  for  $2,500,  and  by  him  indorsed.  The 
bill  was  presented  at  maturity,  payment  demanded  and  was  pro- 
tested for  non-payment  by  A.  B.  Cends,  a  notary  public  of  New 
Orleans.  The  instrument  of  protest  states  that  the  notary  "by 
his  deputy  McDime,  junior,  presented  said  draft  to  Mr.  Fort,  one 
of  the  members  of  the  firm  of  Fort  &  Wilcox,  the  acceptors,  at 
their  office,  and  demanded  payment  thereof,  and  was  answered 
that  the  same  would  not  be  paid."  The  protest  was  made  the 
11th  of  June,  1845. 

By  an  Act  of  the  General  Assembly  of  Louisiana,  passed  the 
14th  of  March,  1844,  it  is  made  lawful  for  each  and  every  notary 
public  in  New  Orleans  to  appoint  one  or  more  deputies  to  assist 
him  in  making  of  protests  and  delivery  of  notices  of  protests  of 
bills  of  exchange  and  promissory  notes.  Provided,  that  each 
notary  shall  be  responsible  for  the  acts  of  each  deputy  employed 
by  him.  And  provided,  that  each  deputy  shall  take  an  oath, 
faithfully  to  perform  his  duties  as  such,  before  the  Judge  of  the 
Parish  in  which  he  may  be  appointed.  And  provided,  the  cer- 
tificate of  notice  of  protest  shall  state  by  whom  made  or  served. 

The  defendant,  at  the  trial  below,  objected  to  the  protest  which 
was  offered  as  evidence,  which  objection  was  overruled  by  the 
Court,  and  the  evidence  was  admitted.  The  jury  found  a  ver- 
dict for  the  plaintiff,  and  the  defendant  appealed  to  this  Court. 

It  is  now  insisted  that  this  protest  is  not  evidence  of  the  pre- 
sentment and  demand  of  the  bill,  because  it  states  that  the  de- 
mand was  made  by  the  deputy  of  the  notary. 

It  is  certainly  true,  as  the  general  rule,  that  a  foreign  bill 


142  DUTIES    OF    THE    HOLDER. 

must  be  presented  by  the  notary  in  person,  and  demand  of  pay- 
ment made  by  him,  and  that  the  demand  by  his  deputy  is  not 
sufficient.  But  it  is  seen  that  the  law  of  Louisiana,  where  this 
bill  was  payable,  authorizes  I  he  employment  of  a  deputy  in  this 
service,  and  that  the  protest  must  certify  by  whom  the  demand 
was  made. 

In  Story  on  Bills,  S  276,  treating  of  protests  of  foreign  bills, 
it  is  laid  down,  that  the  protest  "should  be  made  out  and  drawn 
up  in  the  form  required  by  the  law  or  usage  of  the  place  where 
it  is  made,  and  that  so  essential  is  the  production  of  the  protest, 
that  it  cannot  be  supplied  by  mere  proof  of  noting  for  non- 
acceptance,  and  a  subsequent  protest  for  non-payment."  And 
Mr.  Chitty  observes  (Chitty  on  Bills,  333),  "whenever  notice 
of  non-acceptance  of  a  foreign  bill  is  necessary,  a  protest  must 
also  be  made,  which,  though  mere  matter  of  form,  is  by  the  cus- 
tom of  merchants  indispensably  necessary  and  cannot  be  sup- 
plied by  witnesses  or  oath  of  the  party,  or  in  any  other  way,  and, 
as  it  is  said,  is  a  part  of  the  constitution  of  a  foreign  bill  of 
exchange."  The  mere  introduction  of  this  protest  in  the  case 
of  a  bill  payable  and  protested  out  of  the  country,  will  be  evi- 
dence of  its  dishonor,  ' '  and  to  it  all  foreign  Courts  give  credit. ' ' 
And  at  page  456,  he  says:  "With  respect  to  the  protest,  it 
should  always  be  made  according  to  the  law  of  the  place  where 
the  payment  ought  to  have  been  made,  though,  with  regard  to 
notice  of  dishonor,  it  must  be  given  to  the  drawer  within  the 
time,  and  according  to  the  law  of  the  place  where  the  bill  was 
drawrn,  and  to  the  indorsers  according  to  the  law  of  the  place 
where  the  indorsements  were  made." 

These  authorities  settle  the  question,  and  establish  the  follow- 
ing propositions: 

1.  That  a  protest  is  indispensable  to  the  dishonor  of  a  foreign 
bill  of  exchange. 

2.  That  the  protest  is  to  be  made  according  to  the  law  of  the 
place  where  the  bill  is  payable. 

3.  That  the  protest,  properly  authenticated,  is  evidence  by 
its  mere  production  of  the  presentment  and  demand  in  all  for- 
eign Courts,  where  the  dishonor  of  the  bill  is  required  to  be 
proved. 


LAWSON    v.    THE    FARMERS'    BANK.  143 

4.  That  no  other  evidence  of  the  facts  stated  in  the  protest  is 
competent. 

The  protest  in  the  present  case  was  made  according  to  the 
law  of  Louisiana,  where  the  bill  was  payable,  and,  therefore, 
is  evidence  here  of  the  dishonor  of  the  bill. 

It  is  objected  that  there  is  no  evidence  that  Memphis  was  the 
defendant's  place  of  residence. 

It  appears  that  annexed  to  the  name  of  the  defendant  on  the 
bill  is  added  "Memphis,  Tennessee."  This  we  regard  as  part  of 
his  indorsement,  and  as  sufficient  authority  to  authorize  the 
holder  to  send  the  notice  to  Memphis. 

Affirm  the  judgment. 


LAWSON  v.  THE  FARMERS'  BANK  OF  SALEM. 

1  Ohio  St.  206.     1853. 

Error  to  the  Court  of  Common  Pleas  of  Columbiana  County, 
reserved  in  the  District  Court  for  decision  by  the  Supreme  Court. 
The  original  action  was  assumpsit,  for  recovery  against  Law- 
son  &  Covode,  as  indorsers  of  a  bill  of  exchange,  which  is  as 
follows : 

"Wellsville,  April  25,  1848. 
"$4,000.00.    Ninety  days  after  date,  pay  to  the  order  of  Law- 
son  &  Covode,  four  thousand  dollars,  value  received,  and  place 
the  same  to  the  account  of 

"Yours,  etc.,  W.  F.  Jordan. 

"To  J.  Jordan  &  Son,  Pittsburg, 

"Pay  to  Farmers'  Bank  of  Salem, 

"Lawson  &  Covode." 
"Accepted  by  J.  Jordan  &  Son." 

The  declaration  counts  upon  the  instrument  above  mentioned, 
and  also  contains  the  common  counts. 

Pleas — Non-assumpsit. 

It  appears  that  this  bill  of  exchange,  which  was  drawn  and 
indorsed  in  this  State,  was  discounted  by  the  Bank  of  Salem, 
and  the  money  paid  to  the  acceptors  thereof;  subsequently  it 
was  indorsed  by  the  Bank  of  Salem  to  the  Exchange  Bank  of 
Pittsburg,  in  the  State  of  Pennsylvania,  for  collection,  Jordan 


144  DUTIES    OF    THE    HOLDER. 

&  Son,  the  acceptors,  Living  in  the  city  of  Pittsburg.  It  matured 
in  the  hands  of  the  Exchange  Bank  of  Pittsburg  on  the  27th  clay 
of  July,  1S48,  and  being  dishonored  by  the  acceptors  in  Pitts- 
burg, was  protested  for  non-payment  by  Webb  Closey,  a  notary 
public  of  that  city. 

On  the  trial  of  the  cause  in  the  Court  of  Common  Pleas,  the 
bank  gave  in  evidence  the  bill  of  exchange,  and  the  notarial 
protest  attached  thereto,  dated  July  27,  1848,  also  a  certified 
copy  of  the  notarial  record  of  Webb  Closey,  with  proof  of  his 
death  since  the  protesl  of  the  bill.  The  defendants  below  ob- 
jected to  this  last  testimony,  but  the  Court  admitted  it.  During 
the  trial  the  bank  called  Joseph  J.  Brooks  and  John  Dellen- 
bough,  as  witnesses,  both  being  stockholders  and  directors  in  the 
Salem  Bank,  not  only  at  that  time,  but  also  when  the  bill  was 
discounted  and  matured.  To  the  testimony  of  these  two  wit- 
nesses the  defendants  below  objected,  but  the  Court  overruled 
the  objection  and  admitted  their  testimony,  which  was  material. 

The  bank  having  rested,  the  defendants  in  the  Court  below 
gave  in  evidence  the  notice  of  protest,  which  appears  in  the  rec- 
ord, sent  to  the  Salem  Bank  by  Notary  Closey,  and  produced  by 
the  cashier  of  the  Salem  Bank.  And  evidence  having  been  given 
that  the  Exchange  Bank  of  Pittsburg  closed  at  three  o'clock,  p. 
m.,  on  the  27th  of  July,  1848;  that  Notary  Closey 's  office  was 
about  one  square  from  the  Pittsburg  post-office;  that  the  mail  left 
Pittsburg  for  Salem  at  ten  o'clock,  a.  m.,  on  the  28th  of  July, 
and  was  closed  at  ten  minutes  after  nine  o'clock,  a.  m.;  and  that 
the  business  hours  of  Pittsburg  were  from  seven  o'clock,  a.  m., 
till  dusk,  the  parties  rested  the  case.  The  notarial  protest  does 
not  state  when  the  notices  were  deposited  in  the  post-office,  but 
the  notice  to  the  Salem  Bank,  which  enveloped  the  notice  to 
Lawson  &  Covode,  the  accommodation  indorsers,  is  mail-marked, 
at  the  Pittsburg  post-office,  July  29,  1848. 

The  bill  of  exceptions  taken  upon  the  trial  shows  that  the 
defendants  below  excepted  to  the  ruling  of  the  Court  as  to  the 
admissibility  of  the  testimony  to  which  they  objected,  and  also 
to  that  part  of  the  charge  of  the  Court  to  the  jury,  which  is  as 
follows : 

"It  will  be  proper  to  consider  further  whether  any  legal 
notice  was  given  and  due  diligence  used  to  fix  the  liability  of 


LAWSON    v.    THE    FARMERS'    BANK.  145 

these  defendants.  If  it  appear  from  the  proof  thai  the  demand 
was  made  on  the  27th  of  July,  the  Last  day  of  grace,  and  pay- 
ment refused,  and  that  notice  to  the  defendants  of  such  demand 
and  non-payment  was  deposited  in  the  post-office  at  Pittsburg, 
at  any  time  on  the  28th  of  July,  it  was  proper  and  sufficient  no- 
tice. The  law  gives  the  entire  day  after  the  day  of  dishonor, 
which  was  the  27th  of  July,  to  the  notary  to  deposil  the  notice 
in  the  post-office. 

"It  is  therefore  immaterial  whether  the  notice  in  this  case  was 
deposited  by  the  notary  before  the  closing  of  the  mail  at  the 
post-office  at  Pittsburg,  before  or  after  nine  or  ten  o'clock,  a.  m., 
of  that  da}',  if  the  notice  is  proven  to  be  in  the  office  on  the 
28th.  And,  moreover,  if  the  proof  satisfy  the  jury  that  the  no- 
tice of  the  dishonor  of  this  bill  could  not  be  conveniently  de- 
posited in  the  office  on  the  28th  of  July  in  time  for  the  mail  of 
that  day  (as  we  have  already  substantially  said),  then  it  was  in 
proper  time  if  said  notice  was  deposited  in  time  to  be  sent  out 
by  the  next  mail  after  the  28th  of  July.  In  this  connection  it 
may  be  proper  to  observe  to  the  jury  that  the  plaintiffs  are  in  no 
way  to  be  affected  by  the  delays,  mistakes,  or  oversights  of  the 
post-office  or  its  agents.  And,  if  it  appear  that  the  notice  given 
or  attempted  to  be  given  to  these  defendants  was  not  sent  by  the 
direct  mail  from  Pittsburg  to  Wellsville,  but  by  the  mail  from 
Pittsburg  to  Salem,  and  from  thence  to  Wellsville,  that  fact  will 
not  defeat  the  plaintiff's  right  of  recovery,  if  the  notice  to  the 
defendants  was  deposited  in  the  post-office  at  Pittsburg  in  proper 
time,  directed  to  the  Bank  of  Salem,  and  by  that  bank  forwarded 
to  the  defendants  at  Wellsville,  by  the  next  mail,  after  the 
receipt  of  the  said  notice  at  Salem." 

A  verdict  was  returned  for  the  plaintiff  for  $4,513.33 ;  on 
which  judgment  was  rendered  by  the  Court  of  Common  Pleas  at 
the  September  Term  thereof,  1850 ;  to  reverse  wdiich  this  writ  of 
error  is  brought. 

Bartley,  J.  Touching  the  second  question,  then,  did  the 
Court  of  Common  Pleas  err  in  charging  the  jury  that  if  the 
notice  to  the  indorsers  of  the  demand  and  non-payment  of  the 
bill  was  deposited  in  the  post-office  at  Pittsburg  at  any  time  dur- 
ing the  day  after  the  day  of  dishonor,  without  regard  to  the 
time  of  the  departure  of  the  mail  for  that  day,  it  would  be  suffi- 
cient notice ;  and,  moreover,  that  if  it  was  found  inconvenient  to 
deposit  the  notice  in  the  post-office  in  time  for  the  mail  of  that 
day,  it  was  in  proper  time  if  the  notice  was  deposited  in  time  to 


146  DUTIES    OF    THE    HOLDER. 

be  sent  off  by  the  next  mail  of  the  day  next  after  the  day  follow- 
ing the  day  of  the  dishonor  of  the  bill? 

This  involves  a  very  important  question  of  the  law  merchant, 
and  it  is  not  a  little  surprising  thai  there  should  remain  any 
doubt  or  uncertainty  at  this  late  day  upon  a  question  of  such 
vital  importance  to  the  interest  of  commercial  countries  respect- 
ing the  duties  and  liabilities  of  holders  and  parties  to  dishonored 
paper.  And  it  is  a  matter  of  no  small  moment  that  a  question 
which  enters  so  largely  as  does  this  into  the  every-day  business 
transactions  of  different  commercial  States  and  countries  should 
be  settled,  not  only  upon  a  certain  and  unvarying,  but  also  upon 
a.  uniform  basis. 

The  liability  of  the  indorser  is  strictly  conditional — dependent 
both  upon  due  demand  of  payment  upon  the  maker  or  acceptor, 
and  also  due  and  legal  notice  of  the  non-payment.  The  purpose 
and  object  of  such  demand  and  notice  is  to  enable  the  indorser 
to  look  to  his  own  interest,  and  take  immediate  measures  for  his 
indemnity.  The  demand  and  notice  being  conditions  precedent 
to  the  indorser 's  liability,  it  is  incumbent  on  the  holder  to  make 
clear  and  satisfactory  proof  of  them  before  he  can  recover.  The 
plaintiffs  in  error  in  this  case,  being  accommodation  indorsers, 
may  well  insist  upon  strict  proof  of  due  diligence  in  giving  notice 
of  the  dishonor  of  the  bill. 

The  law  does  not  require  the  utmost  diligence  in  the  holder 
in  giving  notice  to  the  dishonor  of  a  bill  or  note.  All  that  is 
requisite  is  ordinary  or  reasonable  diligence.  And  this  is  not 
only  the  rule  and  requirement  of  the  law  merchant,  but  a  statu- 
tory provision  of  this  State.  But  what  amounts  to  due  diligence 
or  reasonable  notice  is,  when  the  facts  are  ascertained,  purely  a 
question  of  law,  settled  "with  a  view  to  practical  convenience 
and  the  usual  course  of  business. ' ' 

The  question  was  at  one  time  strenuously  contested  whether 
due  diligence  did  not  require  that,  where  the  parties  reside  in 
the  same  place,  the  notice  of  non-payment  should  be  given  on 
the  day  of  the  dishonor  of  the  bill ;  and  where  the  parties  reside 
in  different  places,  should  be  sent  by  the  mail  of  that  day,  or  the 
first  possible  or  practicable  mail  after  the  default :  Tindal  v. 
Brown,  1  Term.  R.  167 ;  Darbishire  v.  Parker,  6  East.  3 ;  Marius 
on  Bills,  24.    But  the  rule  was  established,  and  is  supported  by 


LAWSON    v.    THE    FARMERS'    BANK.  147 

great  weight  of  authority,  that  where  the  parties  reside  in  differ- 
ent places,  and  the  post  is  the  mode  of  conveyance  adopted,  al- 
though it  was  in  no  case  necessary  to  send  the  notice  by  the  post 
of  the  same  day  of  the  dishonor,  or  of  the  knowledge  of  the  dis- 
honor, the  holder  being  entitled  to  the  whole  of  that  day,  being 
the  day  of  the  dishonor  or  knowledge  of  the  dishonor,  to  pre- 
pare his  notice,  yet  that  the  notice  would  be  insufficient  unless 
put  into  the  post-office  in  time  to  go  by  the  next  mail  after  that 
day.  And  this  is  in  conformity  with  the  rule  laid  down  by  Mr. 
Chitty,  in  his  learned  treatise  on  bills  of  exchange,  in  the  follow- 
ing explicit  language:  "When  the  parties  do  not  reside  in  the 
same  place,  and  the  notice  is  to  be  sent  by  general  post,  then  the 
holder  or  party  to  give  the  notice  must  take  care  to  forward 
notice  by  the  post  of  the  next  day,  after  the  dishonor,  or  after 
he  receives  notice  of  such  dishonor,  whether  that  post  sets  off 
from  the  place  where  he  is  early  or  late ;  and  if  there  be  no  post 
on  such  next  day,  then  he  must  send  off  notice  by  the  very  next 
post  that  occurs  after  that  day:"    Chitty  on  Bills,  485. 

This  is  in  accordance  with  the  rule  as  settled  by  the  Supreme 
Court  of  the  United  States.  In  Lenox  v.  Roberts,  2  Wheaton, 
373,  Chief  Justice  Marshall  says:  "It  is  the  opinion  of  the 
Court  that  notice  of  the  default  of  the  maker  should  be  put  into 
the  post-office  early  enough  to  be  sent  by  the  mail  of  the  day 
succeeding  the  last  day  of  grace."  And  in  the  case  of  The 
Bank  of  Alexandria  v.  Swan,  9  Peters,  33,  Mr.  Justice  Thompson 
approved  of  the  general  rule  laid  down  in  the  case  of  Lenox  v. 
Roberts,  holding  that  notice  of  the  dishonor  need  not  be  for- 
warded on  the  last  day  of  grace,  but  should  be  sent  by  the  mail 
of  the  next  day  after  the  dishonor.  The  same  rule  was  adopted 
by  Mr.  Justice  Washington  in  the  case  of  The  United  States  v. 
Parker's  Administrators,  4  Wash.  R.  465,  and  in  which  case  sub- 
sequently that  decision  was  affirmed  on  error  by  the  Supreme 
Court,  12  Wheat.  559.  The  same  rule  received  the  sanction  of 
Mr.  Justice  Story  in  the  case  of  the  Seventh  Ward  Bank  v. 
Hanrick,  2  Story's  R.  416.  Although  in  the  case  of  Mitchell  v. 
Degrand,  1  Mason,  180,  he  appears  to  have  been  disposed  to 
even  greater  strictness,  holding  that  when  a  bill  is  once  dis- 
honored, the  holder  is  bound  to  give  notice  by  the  next  practic- 
able mail  to  the  parties  whom  he  means  to  charge  for  the  default. 


US  DUTIES    OF    THE    HOLDER. 

This,  however,  is  explained  by  Mr.  Justice  Washington,  in  the 
ease  of  United  States  v.  Parker's  Administrators,  to  mean  that 
the  notice  should  be  put  into  11k1  office  in  time  to  lie  scut  by  the 
mail  <»f  thi'  succeeding  day.  Tins  rule,  adopted  by  the  Supreme 
Court  of  the  I 'tided  States,  and  which  is  supported  by  the  greal 
weighl  of  authority  in  England  and  in  the  several  Stales  of  the 
Union  in  which  the  question  appears  to  have  been  settled  by  re- 
ported adjudications,  is  subject  to  some  qualification  relaxing  its 
rigor.  If  two  mails  leave  the  same  day  on  the  route  to  the  place 
of  the  residence  of  the  indorse)-,  it  is  sufficient  to  deposit  the  no- 
tice in  the  post-office  in  time  to  go  by  either  mail  of  that  day.  inas- 
much as  the  fractions  of  the  day  are  not  counted:  Whitewell  v. 
Johnson,  17  Mass.  \l.  449,  454;  Howard  v.  Ives,  1  Hill,  X.  Y.  R. 
263. 

And  for  the  reason  that  the  mail  of  the  day  succeeding  the 
day  of  the  default  may  go  out  in  sonic  places  soon  after  mid- 
night, or  at  a  very  early  hour  in  the  morning,  and  is  sometimes 
made  up  and  closed  the  evening  preceding,  it  has  been  adjudged 
that,  inasmuch  as  the  holder  is  allowed  till  the  day  after  the  day 
of  default  to  send  off  the  notice,  reasonable  diligence  would  not 
require  him  to  deposit  tin1  notice  in  the  post-office  at  an  unsea- 
sonably early  hour,  or  before  a  reasonable  time  can  be  had  for 
depositing  the  notice  in  the  post-office  after  early  business  hours 
of  that  day.  The  rule,  as  qualified  and  settled  by  the  late  au- 
thorities, and  which  I  take  to  be  the  correct  one,  is  that,  where 
the  parties  reside  in  the  same  place  or  city,  the  notice  may  be 
given  on  the  day  of  default;  but  if  given  at  any  time  before  the 
expiration  of  the  day  thereafter,  it  will  be  sufficient;  and  when 
the  parties  reside  in  different  places  or  States,  the  notice  may 
be  sent  by  the  mail  of  the  day  of  the  default;  but,  if  not,  it  must 
be  deposited  in  the  office  in  time  for  the  mail  of  the  next  day, 
provided  the  mail  of  that  day  be  not  made  up  and  closed  at  an 
unreasonably  early  hour.  If,  however,  the  mail  of  that  day  be 
closed  before  a  reasonable  time  after  early  business  hours,  or  if 
there  be  no  mail  sent  out  on  that  day,  then  it  must  be  deposited 
in  time  for  the  next  possible  post.  In  the  case  of  Downs  v. 
Planters'  Bank,  1  Smedes  &  Marshall's  R.  261,  and  also  the  case 
of  Chick  v.  Pillsbury,  24  Maine  R.  458,  the  doctrine  on  this  sub- 
ject has  been  more  fully  examined  than  perhaps  in  any  of  the 


LAWSON    v.    THE    FARMERS'    BANK.  149 

older  cases;  and  the  rule  adopted  is,  that  the  notice,  in  order  to 
charge  the  indorser  living  in  another  place  or  State,  must  be 
deposited  in  the  post-office  in  time  to  be  sent  by  the  mail  of  the 
day  succeeding  the  day  of  the  dishonor,  providing  the  mail  of 
that  day  be  not  closed  at  an  unreasonably  early  hour,  or  before 
early  and  convenient  business  hours.  And  this  rule  is  well  sus- 
tained by  authority:  Fullerton  et  al.  v.  The  Bank  of  the  U.  S., 
1  Peters,  605,  618 ;  Eagle  Bank  v.  Chapin,  3  Pick.  180,  183 ;  Tal- 
bot v.  Clark,  8  Pick.  51;  Carter  v.  Burly,  9  New  Hamp.  559, 
570;  Farmers'  Bank  of  Maryland  v.  Duvall,  7  Gill  &  Johnson, 
79;. Freeman's  Bank  v.  Perkins,  18  Maine,  E.  292;  Meade  v. 
Engs,  5  Cowen,  303;  Sewall  v.  Russell,  3  Wend.  276;  Brown  v. 
Ferguson,  4  Leigh,  37 ;  Dodge  v.  Bank  of  Kentucky,  2  Marshall, 
610;  Hickman  v.  Ryan,  5  Littell,  24;  Hartford  Bank  v.  Steed- 
man,  3  Connecticut  R.  489 ;  Brenger  v.  Wightman,  7  Watts  & 
Serg.  264;  Townsley  v.  Springer,  1  Louisiana  R.  122;  Bank  of 
Natchez  v.  King,  2  Robinson,  243 ;  Brown  v.  Turner,  1  Alabama 
R.  752;  Lockwood  v.  Crawford,  18  Conn.  363;  Bayley  on  Bills, 
262 ;  Story  on  Promissory  Notes,  §  325,  and  Byles  on  Bills,  160. 

Some  obscurity  and  uncertainty  have  been  created  on  this 
subject  by  the  expression  used  in  some  of  the  cases,  and  by  some 
of  the  elementary  writers,  that  the  holder  or  person  giving  the 
notice  has  "one  day"  or  "an  entire  day"  in  which  to  give  the 
notice  after  the  day  of  the  dishonor.  The  term  one  day  or  an 
entire  day  seems  not  to  have  been  used  always  in  the  same  sense ; 
and  the  confusion  appears  to  have  in  part  arisen  from  the  fact 
that  where  the  parties  reside  in  the  same  place,  notice  at  any 
time  before  the  expiration  of  the  day  after  the  day  of  the  de- 
fault will  be  sufficient,  while  where  the  parties  reside  in  different 
places  the  notice  must  frequently  be  mailed  early  in  the  day,  to 
be  in  time  for  the  mail  of  that  day. 

The  defendant  in  error  relies  upon  the  doctrine  laid  down  in 
the  elementary  works  of  Chancellor  Kent  and  Mr.  Justice  Story, 
as  fully  sustaining  the  charge  of  the  Court  below.  Inasmuch  as 
precision  and  certainty  in  the  settlement  of  this  rule  are  of  very 
great  importance,  a  careful  examination  of  the  subject  seems  to 
be  required. 

Chancellor  Kent,  whose  accuracy  in  his  Commentaries  on 
American  Law  is  never  to  be  questioned  without  grave  considera- 


150  DUTIES    OF    THE    HOLDER. 

tion,  in  the  late  editions  of  his  works,  3  Kent's  Comm.  106,  states 
the  rule  as  follows  : 

"According'  to  the  modern  doctrine,  the  notice  must  be  given 
by  the  first  direct  and  regular  conveyance.  This  means  the  first 
mail  that  goes  after  the  day  next  to  the  third  day  of  grace,  so 
that  if  the  third  day  of  grace  be  on  Thursday,  and  the  drawer 
or  indorser  reside  out  of  town,  the  notice  may  indeed  be  sent  on 
Thursday,  but  must  be  put  into  the  post-office  or  mailed  on  Fri- 
day, so  as  to  be  forwarded  as  soon  as  possible  thereafter." 

And  in  a  note  by  the  learned  author  explanatory  of  the  text, 
it  is  said  that 

"The  principle  that  ordinary  reasonable  diligence  is  sufficient, 
and  that  the  law  does  not  regard  the  fractions  of  the  day  in 
sending  notice,  will  sustain  the  rule  as  it  is  now  generally  and 
best  understood  in  England  and  in  the  commercial  part  of  the 
United  States,  that  notice  put  into  the  post-office  on  the  next 
day,  at  any  time  of  the  day  so  as  to  be  ready  for  the  first  mail 
that  goes  thereafter,  is  due  notice,  though  it  may  not  be  mailed 
in  season  to  go  by  the  mail  of  the  day  next  after  the  day  of  the 
default." 

Several  cases  are  cited  by  the  learned  author,  but  they  do  not 
sustain  his  position.  The  case  of  Jackson  v.  Eichards,  2  Caines 
Cases,  343,  referred  to,  is  not  in  point.  Haynes  v.  Birks,  3  Bos. 
&  Pul.  601,  decides  that  when  the  note  fell  due  on  Saturday,  the 
notice  sent  by  the  post  on  Monday  was  sufficient.  Sunday  being 
excluded  and  not  taken  into  the  account,  the  notice  was  sent  by 
the  post  of  the  next  legal  day.  In  the  cases  of  Bray  v.  Hadwen, 
5  Maule  &  Selwyn,  68,  and  Wright  v.  Shawcross,  2  Barn.  &  Aid. 
501,  it  was  decided  that  the  notice  having  arrived  on  Sunday, 
was  to  be  considered  as  having  been  received  on  Monday,  and 
then  the  party  had  till  Tuesday,  the  next  post  day,  for  giving 
the  notice.  In  Gall  v.  Jeremy,  1  M.  &  M.  61,  where  no  mail  went 
out  on  the  day  next  after  the  day  of  the  default,  it  was  held  that 
the  rule  being  an  impossible  one  on  that  day,  a  notice  sent  by  the 
next  succeeding  mail  day  would  be  in  season.  The  case  of  Firth 
v.  Thrush,  8  B.  &  C.  387,  turned  upon  the  question  whether  the 
attorney  employed  to  ascertain  the  residence  of  the  defendant 
should  be  allowed  a  day  to  consult  his  client  after  information 
of  the  defendant's  residence.     And  Lord  Tenterden  said,  "If 


LAWSON    v.    THE    FARMERS'    BANK.  151 

the  letter  (giving  information  of  the  defendant's  residence)  had 
been  sent  to  the  principal,  he  would  have  been  bound  to  give 
notice  on  the  next  day."  The  only  other  case  referred  to  is 
that  of  Hawkes  v.  Salter,  4  Bing.  715;  and  this  is  the  only  one 
which  even  tends  to  sustain  the  position  of  the  learned  author. 
In  that  case  the  bill  was  dishonored  on  Saturday,  and  the  mail 
left  at  half-past  nine  o  'clock  on  Monday  morning ;  and  an  unsuc- 
cessful attempt  was  made  to  prove  that  the  notice  was  put  into 
the  post-office  on  Tuesday  morning.  Best,  C.  J.,  expressed  him- 
self clearly  of  opinion,  "that  it  would  have  been  sufficient  if  the 
letter  had  been  put  into  the  post-office  before  the  mail  started 
on  the  Tuesday  morning,  but  that  there  was  no  sufficient  evi- 
dence that  it  had  been  put  in  even  on  Tuesday  morning."  The 
opinion  in  this  case  was  therefore  a  mere  dictum,  which  de- 
termined nothing,  the  case  being  decided  upon  a  different 
ground. 

But  the  position  of  Chancellor  Kent,  above  referred  to,  is  in 
direct  conflict  with  the  rule  as  laid  down  by  himself  in  the  first 
edition  of  his  work.  In  the  edition  of  1828,  3  Kent's  Comm. 
73,  the  rule  is  stated  in  these  words : 

"According  to  the  modern  doctrine,  the  notice  must  be  given 
by  the  first  direct  regular  conveyance.  This  means  the  first  con- 
venient and  practicable  mail  that  goes  on  the  day  next  to  the 
third  day  of  grace ;  so  that  if  the  third  day  of  grace  be  on  Thurs- 
day, and  the  drawer  or  the  indorser  reside  out  of  town,  the  no- 
tice may  indeed  be  sent  on  Thursday,  but  must  be  sent  by  the 
mail  that  goes  on  Friday. ' ' 

In  the  last  edition  of  this  work,  published  in  1851,  the  editor, 
Mr.  William  Kent,  admits  the  weight  of  authority  to  be  in  favor 
of  the  rule  as  laid  down  in  Chick  v.  Pillsbury  and  Downs  v. 
Planters'  Bank,  above  referred  to;  and  he  says  that 

"The  opinion  of  Chief  Justice  Best,  in  4  Bing.  715,  is  the 
only  one  that  sustains  the  rule  suggested,  and  that  the  observa- 
tions of  Mr.  Justice  Story  were  too  latitudinarian  in  allowing 
the  entire  whole  day  next  after  the  dishonor." 

It  is  true  that  Mr.  Justice  Story,  in  his  work  on  bills  of  ex- 
change, §  291,  says  that  an  indorser  need  not  give  notice  to  his 


152  DUTIES    OF    THE    HOLDER. 

antecedent  indorser  fill  twenty-four  hours  have  elapsed  after  the 
receipt  of  his  own  notice  of  the  dishonor.  And  in  his  note  to 
§  290,  of  the  same  work,  the  author  says  that 

"The  rule  does  not  appear  to  be  so  strict  as  it  is  laid  down 
by  Mr.  ("bitty,  and  that  it  would  be  more  correct  to  say  that  the 
holder  is  entitled  to  one  whole  day  to  prepare  his  notice,  and 
that  therefore  it  will  be  sufficient  if  he  sends  it  by  the  next 
post  that  goes  after  twenty-four  hours  from  the  time  of  the  dis- 
honor,"  etc. 

And  he  adds: 

"I  have  seen  no  late  case  which  imports  a  different  doctrine; 
on  the  contrary,  they  appear  to  me  to  sustain  it;  hut  as  I  do  not 
know  of  any  direct  authority  which  positively  so  decides,  this 
remark  is  merely  propounded  for  the  consideration  of  the  learned 
reader." 

It  is  not  necessary  here  to  inquire  whether  the  position  taken 
by  the  learned  author  is  in  conflict  with  the  decisions  made  by 
himself  in  1  Mason's  R.  180  and  2  Story's  R.  416,  above  referred 
to.  In  his  same  work  on  bills  of  exchange,  he  has  stated  the  rule 
with  great  precision  and  accuracy  in  the  following  language,  in 
§  382: 

"In  all  cases  where  notice  is  required  to  be  given,  it  is  suffi- 
cient, if  the  notice  is  personal,  that  it  is  given  on  the  day  suc- 
ceeding the  day  of  the  dishonor  early  enough  for  the  party  to 
receive  it  on  that  day.  If  sent  by  the  mail,  it  is  sufficient  if  it 
is  sent  by  the  mail  of  the  next  day,  or  the  next  practicable 
mail."  And  in  §  288:  "If  the  post  or  mail  leaves  the  next 
day  after  the  dishonor,  the  notice  should  be  sent  by  that  post 
or  mail,  if  the  time  of  its  closing  or  departure  is  not  at  too  early 
an  hour  to  disable  the  holder  from  a  reasonable  performance  of 
the  duty.  So  that  the  rule  may  be  fairly  stated  in  more  general 
terms  to  be  that  the  notice  is  in  all  cases  to  be  sent  by  the  next 
practical  post  or  mail  after  the  day  of  the  dishonor,  having  a 
due  reference  to  all  the  circumstances  of  the  case." 

The  same  learned  author  has  laid  down  the  rule  very  fully  to 
the  same  effect  in  his  work  on  promissory  notes,  §  324. 

The  statement  of  the  rule  in  the  last  extract  is  consistent  with 


LAWSON  v.  THE  FARMERS'  BANK.         153 

the  doctrine  established  by  the  Supreme  Court  of  the  United 
States,  and  fully  sustained  by  authority. 

The  discrepancies  which  have  arisen  on  this  subject  appear 
to  have  grown  out  of  an  inaccurate  use  of  the  books  and  deci- 
sions of  the  terms,  "his  day,"  "an  entire  day,"  and  "a  whole 
day,"  etc.,  these  phrases  being  at  one  time  understood  or  taken 
literally,  and  at  another  time  to  mean  a  space  of  time  equal  to 
a  full  day.  If  these  phrases  are  to  be  taken  to  mean  the  dura- 
tion of  a  full  day,  instead  of  the  day  itself,  in  their  general 
application,  the  effect  would  be  to  change  and  break  down  nu- 
merous well  settled  and  useful  rules.  The  law,  as  a  general  thing, 
does  not  have  regard  to  the  fractions  of  a  day,  and  thus  compel 
parties  to  resort  to  nice  questions  of  the  sufficiency  of  a  certain 
number  of  hours  or  minutes,  and  to  the  taking  of  the  parts  of 
two  different  days  to  make  up  what  may  be  considered  in  one 
sense  a  day,  because  equal  in  duration  to  one  entire  day.  If 
this  were  the  case,  the  indorser,  after  having  been  notified,  would 
often  be  unable  to  determine  whether  he  had  been  notified  in 
season  or  not  until  he  had  learned  the  hour  of  the  day  when  the 
default  occurred;  and  the  holder  would  have  it  in  his  power  at 
times  of  affecting  injuriously  the  right  of  the  indorser  to  an 
early  notice,  by  delaying  the  presentment  until  a  late  hour  in  the 
day.  Nothing  more  could  have  been  intended  by  the  use  of 
these  phrases  than  that  each  party  should  have  a  specified  day 
upon  which  the  act  enjoined  upon  him  should  be  performed. 
This  is  the  sense  in  which  Lord  Ellenborough  used  it  in  the 
case  of  Smith  v.  Mullett,  2  Camp.  208,  when  he  said,  "  If  a  party 
has  an  entire  day,  he  must  send  off  his  letter  conveying  the  no- 
tice within  post  time  of  that  day."  And  it  is  said  by  a  learned 
elementary  author,  "  If  a  party  has  an  entire  day,  he  must  send 
off  his  letter  conveying  the  notice  of  the  dishonor  of  the  bill 
within  post  time  of  that  day:"    Byles  on  Bills,  161. 

The  rule  laid  down  in  Smith's  Mercantile  Law,  to  which  the 
defendant  in  error  has  referred,  will  not,  as  I  apprehend,  be 
found  on  close  examination  to  be  at  variance  with  the  doctrine 
here  adopted:     Smith's  Mercantile  Law,  310. 

It  is  claimed  on  behalf  of  the  plaintiffs  in  error  in  this  case 
that  the  notice  of  the  dishonor  of  the  bill  should  have  been 
sent  immediately  to  them,  instead  of  being  sent,  as  it  was  in 


154  DUTIES    OF    THE    HOLDER. 

the  first  place,  to  the  Bank  of  Salem.  The  holder  is  not  bound 
to  give  notice  of  the  dishonor  to  any  more  than  his  immediate 
indorser.  And  each  party  to  a  bill  has  the  same  time,  after 
notice  to  himself,  for  giving  notice  to  other  parties  beyond  him 
that  was  allowed  to  the  holder  after  the  default:  Sheldon  v. 
Benham,  4  Hill,  N.  Y.  129;  Eagle  Bank  v.  Hathaway,  5  Met- 
calf,  213.  And  when  a  bill  is  sent  to  an  agent  for  collection, 
the  agent  is  required  simply  to  give  notice  of  the  dishonor  in 
due  time  to  his  principal;  and  the  principal  then  has  the  same 
time  for  giving  notice  to  the  indorsers,  after  such  notice  from  his 
agent,  as  if  he  had  been  himself  an  indorser  receiving  notice 
from  a  holder:  Bank  of  the  U.  S.  v.  Davis,  2  Hill's  X.  Y.  E. 
452;  Church  v.  Barlow,  9  Pick.  547.  The  party  in  this  case 
therefore  was  not  at  fault  by  sending  the  notice  directly  to  the 
Bank  of  Salem,  leaving  that  bank  to  send  the  notice  to  the  plain- 
tiffs in  error. 

Applying  the  rule  therefore  which  we  have  adopted  as  the 
correct  one  to  this  case,  it  was  incumbent  on  the  plaintiff  below, 
in  order  to  be  entitled  to  a  recovery,  to  show  that  the  notice  of 
the  dishonor  of  the  bill  wTas  deposited  in  the  post-office  in  Pitts- 
burg in  time  to  be  sent  by  the  mail  of  the  28th  day  of  July.  Ten 
minutes  past  uine  o'clock  in  the  morning  was  not  an  unreason- 
ably early  hour,  or  before  a  reasonable  and  convenient  time  after 
the  commencement  of  early  business  hours  of  the  day.  The 
neglect  therefore  to  send  the  notice  by  the  mail  of  the  next  day 
after  the  day  of  the  default  operated  to  discharge  the  plaintiffs 
in  error  as  indorsers,  unless  from  some  other  cause  notice  had 
been  dispensed  with  or  rendered  unnecessary.  And  for  the 
charge  of  the  Court  of  Common  Pleas  to  the  jury  for  the  con- 
trary, the  judgment  is  reversed  and  the  cause  remanded  for 
further  proceedings. 

Judgment  of  Common  Pleas  reversed. 


MORGAN  v.  BANK  OF  LOUISVILLE. 
4  Bush.  82.     1868. 

Chief  Justice  "Williams.     This  w7as  a  suit  upon  the  note  of 
Morgan  for  two  thousand  five  hundred  and  ninety-two  dollars, 


MORGAN    v.    BANK    OF    LOUISVILLE.  155 

dated  New  Orleans,  La.,  January  23,  1861,  payable  at  the  office 
of  Pilcher  &  Goodrich,  New  Orleans,  at  nine  months'  time,  with 
eight  per  cent,  interest,  and  indorsed  by  Pilcher  &  Goodrich  and 
B.  P.  Scally.  The  note  was  not  paid  at  maturity,  but  protested 
by  a  notary  public  in  New  Orleans. 

Morgan,  the  maker,  let  judgment  go  by  default,  but  Scally, 
the  indorser,  insists  that  he  is  not  liable. 

The  evidence  establishes  the  following  facts,  to  wit:  That 
Scally  resided  in  Louisville,  Ky.,  when  the  note  fell  due,  and 
ever  since ;  that  there  was  then  a  war  between  the  Southern  and 
Northern  States,  and  no  mail  communication  between  New  Or- 
leans and  Louisville;  that  the  latter  post  had  fallen  into  the 
Federal  possession,  and  a  mail  sent  hence  to  New  York,  May  3, 
1862 ;  from  which  time  mail  communication  became  regular  and 
safe  once  a  week;  and  that  the  blockade  of  New  Orleans,  by 
order  of  the  President  of  the  United  States,  was  raised  June  1, 
1862;  that  the  said  paper  was  held  by  the  New  Orleans  Canal 
and  Banking  Company  until  November  20,  1862,  when  it  was 
sent  by  express  to  the  Bank  of  Louisville,  at  Louisville,  Ken- 
tucky, which  owned  it;  and  that  December  5,  1862,  the  cashier 
of  the  Bank  of  Louisville  deposited  a  notice  in  the  post-office 
at  Louisville,  notifying  Scally  of  the  dishonor  of  said  paper; 
that  by  the  laws  of  Louisiana  and  custom  of  merchants  such 
paper  is  regarded  as  commercial. 

"Was  this  a  legal  notice  to  the  indorser,  Scally? 

It  is  insisted  by  appellee  that  no  protest  or  notice  was  neces- 
sary, because  of  the  late  civil  war,  Louisville  and  New  Orleans 
then  being  within  the  military  lines,  and  held  by  different  bel- 
ligerents, and  claims  that  this  has  been  so  adjudicated  by  this 
Court  in  Graves  v.  Tilford,  2  Duvall,  108 ;  Bell,  Berkley  &  Co. 
v.  Hall,  lb.  292,  and  Berry,  etc.  v.  Southern  Bank,  lb.  379. 

The  first  case  was  upon  assigned  notes — not  commercial  paper 
— hence  no  question  of  commercial  law  was  involved. 

In  the  case  of  Bell,  Berkley  &  Co.  v.  Hall,  suit,  with  attach- 
ment, was  brought  but  a  few  days  before  the  bill  of  exchange 
fell  due,  January  13,  1862.  It  had  been  drawn  and  accepted  in 
Kentucky,  but  payable  in  New  Orleans;  the  war  was  flagrant 
when  it  fell  due;  the  bill  had  not  been  forwarded  to  New  Or- 
leans for  payment,  but  was  in  suit  in  Kentucky;  it  would  have 


156  DUTIES    OF    THE    HOLDER. 

been  illegal  to  attempt  then  to  collect  this  bill  in  New  Orleans; 
the  maker  and  indorsers  of  the  bill  not  only  had  the  presumed 
notice  of  open  hostilities  between  the  two  States,  but  the  actual 
notice  by  suit  that  the  holder  was  looking  to  them. 

In  Berry  v.  Southern  Bank,  the  bills  of  exchange  were  drawn 
and  indorsed  in  Kentucky  and  sold  to  a  Kentucky  bank,  ad- 
dressed to  a  firm  in  New  Orleans,  the  very  day  of  the  Presi- 
dent's proclamation  of  blockade,  the  official  notification  of  war 
between  Kentucky  and  Louisiana,  and  which  were  not  payable 
until  after  the  Congressional  Act  of  non-intercourse  and  the 
President's  proclamation  thereof. 

These  bills  were  not  accepted,  and  no  evidence  that  they 
were  ever  in  New  Orleans;  but  suit  was  prosecuted  upon  them 
against  the  drawer  and  indorsers,  who  resided  in  Kentucky.  It 
was  held,  upon  these  facts,  that  the  war  rendered  it  not  only 
unnecessary,  but  illegal,  to  send  said  bills  to  New  Orleans  for 
collection ;  and,  therefore,  protest  was  unnecessary  and  notice 
immaterial,  as  the  public  war  itself  was  a  notification ;  and  this 
doctrine  is  well  announced  by  the  Court  of  error  in  New  York 
(Griswald  v.  Waddington,  16  Johns.  443),  well  drawing  a  dis- 
tinction between  commercial  paper  drawn  in  one  country,  pay- 
able in  another,  before  and  after  war  breaks  out  between  these 
countries. 

But  the  facts  in  the  case  now  under  consideration  are  quite 
different  from  those  in  Berry  v.  Southern  Bank.  In  this  case 
the  paper  was  made  in  New  Orleans  before  the  war  broke  out, 
payable  in  New  Orleans  after  it  broke  out;  the  maker  and  first 
indorsers  were  residents  of  Louisiana  when  it  fell  due,  and  the 
paper  held  by  a  New  Orleans  bank,  though  it  belonged  to  a 
Kentucky  bank,  and  the  last  indorser,  who  is  now  resisting  it, 
was  a  resident  of  Kentucky. 

The  war  could  be  no  notice  to  him  that  the  maker  and  first 
indorsers,  who  were  residents  of  Louisiana,  had  not  paid  it  to  a 
Louisiana  holder ;  therefore  it  was  essential  to  notify  him  of  the 
fact  at  the  earliest  practicable  period. 

The  New  Orleans  holder  very  properly  had  it  duly  presented 
and  protested  for  non-payment,  and  notified  the  Louisiana  par- 
ties thereof,  but  could  not  then  notify  the  Kentucky  parties. 
But  reasonable  diligence  would  not  require  a  sending  of  the 


MORGAN    v.    BANK    OF    LOUISVILLE.  157 

notice  by  the  very  first  mail  sent  out  by  the  military  authorities 
from  New  Orleans,  through  a  portion  of  the  enemy's  country, 
because  the  sending'  of  such  mail  might  not  be  known,  nor  might 
be  safe  if  known.  When,  however,  the  mail  became  regular,  and 
notorious,  and  safe,  it  was  the  duty  of  the  New  Orleans  holder 
to  notify  its  principal  that  it  might  notify  the  antecedent  Ken- 
tucky parties. 

In  House  v.  Adams,  48  Pa.  St.  266,  the  Supreme  Court  of 
Pennsylvania,  in  case  of  two  bills  of  exchange  drawn  and  in- 
dorsed in  that  State,  on  a  New  Orleans  house,  and  which  were 
protested — the  first  June  11,  1861,  the  second  July  29,  1861 — 
and  notice  of  dishonor  received  by  the  holders  at  Pittsburg,  July 
11,  1862,  and  was  immediately  delivered  to  the  antecedent  par- 
ties there,  held  upon  the  authority  of  Patience  v.  Townley,  2 
Smith's  Eng.  R.  224,  and  Hopkins  v.  Page,  2  Brock  U.  S.  R. 
20,  that  notice  of  the  dishonor  of  such  paper  was  essential  so 
soon  as  it  could  reasonably  be  made;  but  as,  from  the  evidence, 
it  appeared  that  the  first  mail  received  at  Pittsburg  from  New 
Orleans  was  about  July  1,  1862,  and  considerable  intervals  be- 
tween them,  the  notice  was  deemed  reasonable  and  the  indorsers 
held  liable. 

The  blockade  was  removed  from  the  port  of  New  Orleans 
June  1,  1862.  The  mails  were  regularly  sent  to  New  York,  and 
thence  to  the  other  places  within  the  Federal  lines  regularly 
once  a  week.  There  appears  no  reasonable  excuse  for  delaying 
the  sending  of  this  paper  from  New  Orleans  until  November  20, 
1862.  A  delay  of  five  months  and  twenty  days  after  the  block- 
ade was  raised,  with  regular  weekly  mails,  which  had  gone  safely 
once  a  week  for  a  month,  cannot  be  deemed  reasonable,  nor  ac- 
counted for  by  the  then  political  situation  of  the  country. 

The  ports  of  the  Gulf  and  Southern  Atlantic  were  blockaded 
by  the  Federal  navy;  no  part  of  the  route  from  New  York  to 
Louisville  was  through  the  enemy's  country,  or  in  their  posses- 
sion ;  hence  the  line  of  communication  between  New  Orleans  and 
Louisville,  via  New  York,  remained  open  and  uninterrupted. 

Wherefore  the  judgment  is  reversed  as  to  Scally,  with  direc- 
tions for  further  proceedings  in  accordance  herewith. 


CHAPTER  VII. 

LIABILITIES  OF  PARTIES  AND  SPECIAL  FORMS  OF  DISCHARGES.* 

Liability  of  Acceptor  to  Holder.] 

PRICE  v.  NEAL. 

3  Burrows,  1354.     1762. 

(This  case  appears  in  Chapter  V,  ante.) 


Liability  of  Drawer  or  Indorser  to  the  Holder.]] 

HOTEL  CO.  v.  BAILEY. 

64  Vt.  151.     1892. 

(This  case  appears  in  Chapter  V,  ante,) 


EX  PARTE   CLARKE. 
3  Brown's  Chancery  Cases,  238.     1791. 

Petition  to  be  admitted  a  creditor,  in  respect  to  certain  bills 
indorsed  by  the  bankrupt  to  the  petitioner.  The  bills  were  made 
to  fictitious  payees.  But  it  was  said,  that  that  circumstance  was 
of  no  consequence  against  the  indorser. 

It  is  clear  that,  as  against  the  indorser,  it  does  not  signify 
what  the  bill  is.  The  indorsee  may  come  against  the  indorser, 
though  the  bill  is  a  mere  nullity  in  other  respects.  It  is  the 
indorser 's  business  to  see  what  he  can  make  of  the  bill,  but  he,  by 
his  indorsement,  is  certainly  liable  to  the  indorsee. 


*  See  Chapter  VII.,  Vol.  6,  Cyclopedia  of  Law. 
fSee  Sec.  835,  Vol.  6,  Cyclopedia  of  Law. 
||  See  Sec.  836,  Vol.  6,  Cyclopedia  of  Law. 

158 


I  DUMONT    v.    WILLIAMSON.  159 

DUMONT  v.  WILLIAMSON. 
18  Ohio  St.,  515.     1869. 

The  original  action  in  this  case  was  brought  by  the  plaintiff  in 
error,  who  states  in  his  petition  "that  Henry  Essman,  on  the 
12th  of  May,  1860,  at  Cincinnati,  made  his  promissory  note  in 
writing  of  that  date,  and  thereby  promised  to  pay  to  the  order 
of  William  Wolff  five  hundred  dollars,  for  value  received,  in 
four  months  after  the  date  thereof,  and  which  said  promissory 
note  purports  to  be  indorsed  on  the  back  thereof  by  Wm.  Wolff, 
which  said  note  afterward  came  to  the  hands  of  the  defendant, 
who  afterward  then  and  there  indorsed  and  delivered  the  same 
to  the  plaintiff,  but  without  recourse  on  him.  The  plaintiff  avers 
that  the  defendant  did  thereby  warrant  that  the  indorsement  on 
the  back  thereof  was  the  signature  of  William  Wolff,  and  was 
made  by  him,  whereas  in  truth  and  in  fact  said  signature  on  the 
back  of  said  note  was  not  made  by  said  William  Wolff,  but  was 
and  is  a  forgery,  and  by  reason  thereof  said  note  was  wholly 
worthless,  and  of  no  value,  the  said  Henry  Essman,  the  maker 
thereof,  being  wholly  insolvent." 

The  petition  proceeds  to  allege  due  demand  and  notice  of  non- 
payment at  maturity,  and  asks  judgment  for  the  amount  of  the 
note,  with  interest. 

A  copy  of  the  note  is  attached  to  the  petition,  which,  with 
the  indorsement  thereon,  corresponds  with  the  statements  of  the 
petition. 

To  this  petition  the  defendant  demurred,  and  the  case  was 
thereupon  reserved  from  special  term  for  the  opinion  of  the 
judges  in  general  term  upon  the  questions  of  law  arising  on  the 
demurrer.  By  the  judgment  of  the  court  in  general  term  the 
demurrer  was  sustained,  and  the  plaintiff  not  desiring  to  amend 
his  petition,  it  was  thereupon  dismissed,  and  judgment  rendered 
against  plaintiff  for  costs. 

The  plaintiff  here  asks  a  reversal  of  this  judgment  on  the 
ground  of  error  in  the  Superior  Court  in  sustaining  the  de- 
murrer to  his  petition. 

There  is  no  statement  in  the  petition  of  the  circumstances 
under  which  the  note  in  this  case  was  transferred  to  the  plaintiff, 


IfiO  LIABILITIES    OP    PARTIES. 

or  the  consideration  paid  therefor,  bu1  it  is  to  be  presumed  that 
it  was  so  transferred  Eor  a  valuable  consideration.  Tf  the  fact 
be  otherwise,  this  is  a  matter  of  defense,  to  be  set  up  by  answer. 

There  is  no  avermenl  of  fraud,  or  thai  the  defendanl  bad 
knowledge  a1  the  time  of  the  transfer,  of  any  defect  in  the  note, 
which  be  concealed.  The  question  therefore  arises,  whether  upon 
the  sale  and  transfer  of  a  promissory  note  by  indorsement,  ''with- 
out recourse,"  the  vendor  impliedly  warrants  thai  the  signa- 
tures of  the  prior  parties  whose  names  appear  thereon  are 
genuine. 

Wliilsi  the  words  "without  recourse,"  accompanying  an  in- 
dorsement clearly  indicate  that  the  party  making  the  transfer 
does  not  intend  to  assume  the  position  of  an  unconditional  in- 
dorser,  or  to  incur  any  liability  if  the  note  is  not  paid  at  matu- 
rity, upon  due  demand,  or  even  if  all  the  parties  to  the  paper 
should  prove  to  be  wholly  insolvent,  we  think  they  can  not  be 
construed  as  importing  more  than  this.  At  least  they  do  not 
divest  such  indorser  of  his  character  as  a  vendor  of  the  note, 
nor  exempt  him  from  the  liabilities  arising  from  a  sale  and 
transfer  by  delivery,  where  the  note  is  capable  of  being  thus 
transferred.  In  such  case,  then,  is  there  no  implied  warranty 
on  the  part  of  the  vendor  that  the  note  is  not  forged  ?  That  it  is 
in  fact  what  it  purports  on  its  face  to  be? 

On  this  question  the  language  of  the  text-books,  in  this  country 
at  least,  is  nearly,  if  not  quite,  uniform. 

Justice  Story,  in  his  Commentary  on  Promissory  notes,  §  118, 
speaking  of  the  liabilities  of  a  party  who  transfers  a  note  by 
delivery  only,  says:  "In  the  first  place  he  warrants  by  implica- 
tion, unless  otherwise  agreed,  that  he  is  a  lawful  holder,  and  has 
a  just  and  valid  title  to  the  instrument,  and  a  right  to  transfer 
it  by  delivery ;  for  this  is  implied  as  an  obligation  of  good  faith. 
In  the  next  place,  he  warrants,  in  like  manner,  that  the  instru- 
ment is  genuine,  and  not  forged  or  fictitious."  To  this  the  editor 
of  the  fourth  edition  of  the  work,  published  in  1856,  adds  in 
brackets:  ["that  it  is  of  the  kind  and  description  it  purports  on 
its  face  to  be;  unless  where  the  note  is  sold,  as  other  goods  and 
effects,  by  delivery  merely,  without  indorsement,  in  which  case 
it  has  been  decided  that  the  law  respecting  the  sale  of  goods  is 
applicable,  and  that  there  is  no  implied  warranty;"]  referring 


DUMONT    v.    WILLIAMSON.  161 

in  the  notes  to  the  eases  of  Baxter  v.  Duren  (29  Maine  R.,  434), 
Ellis  v.  Wild  (6  Mass.  E.,  321),  and  other  authorities,  also  to 
conflicting  decisions.  This  new  matter  was  added  to  the  text 
after  Justice  Story's  death,  as  is  shown  by  the  brackets,  and  was 
evidently  intended  only  as  a  statement  of  the  authorities  bearing 
on  the  question.  The  exception  stated  to  the  general  rule  as  laid 
down  by  Judge  Story  can  not,  therefore,  claim  the  sanction  of 
his  name. 

The  law  is  similarly  stated  in  Parson  on  Notes  and  Bills  (Vol. 
2,  pages  37,  39),  where  it  is  said  to  be  "well  settled  that  the 
vendor  without  indorsement  [the  transferrer]  warrants  that  the 
paper  is  of  the  kind  and  description  that  it  purports  to  be."  In 
a  note  on  page  38,  the  case  of  Baxter  v.  Duren,  supra,  is  referred 
to,  where  it  was  held  that  one  who  sells  and  transfers  a  promis- 
sory note  by  delivery  is  not  liable  on  an  implied  warranty  of 
its  genuineness,  if  he  sold  the  same  as  property,  and  not  in  pay- 
ment of  a  debt  previously  existing  or  then  created,  and  if  he  did 
not  know  of  the  forgery.  But  it  was  said  in  that  case  that  if  the 
note  was  transferred  by  delivery  merely,  in  payment  of  a  debt 
due,  or  for  goods  then  purchased,  or  by  way  of  discount  for 
money  then  loaned,  there  would  in  such  case  be  an  implied  war- 
ranty of  the  genuineness  of  the  paper.  "But,"  adds  the  learned 
author,  "this  distinction  does  not  seem  to  be  well  founded."  And 
again,  at  page  589  of  the  same  volume,  the  principle  is  broadly 
stated  "that  any  transferrer  of  a  note  or  bill  transferable  by  de- 
livery, warrants  that  it  is  no  forgery.  If  it  turns  out  that  the 
name  of  one  of  the  parties  is  forged,  and  the  bill  becomes  value- 
less, the  vendor,  though  no  party  to  the  bill,  becomes  liable  to 
the  vendee  as  upon  a  failure  of  consideration."  He  then  pro- 
ceeds to  state,  without  further  comment,  the  distinction  which 
was  taken  in  the  case  of  Baxter  v.  Duren,  supra,  and  of  which 
has  previously  disapproved. 

So,  in  Edwards  on  Bills  and  Promissory  Notes,  page  291,  it 
is  said:  "The  party  assuming  to  transfer  a  negotiable  instru- 
ment thereby  asserts  it  to  be  genuine,  and  is  bound  to  make  his 
assertion  good. ' '  And  on  page  289  :  ' '  Though  the  indorser 
transfers  the  note  upon  condition  ihat  it  is  to  be  collected  at  the 
risk  of  the  indorsee,  he  is  nevertheless  responsible  if  the  note 


162  LIABILITIES    OF    PARTIES. 

proves  to  be  a  forgery.     (Shaver  v.  Ehle,  16  Johns.  R.,  201,  and 
20  \.  7.  R.,  226.) 

In  England,  it  seems  to  1"'  well  Bettled,  by  the  latest  decisions 
on  the  subject,  thai  the  vendor  of  a  bill  of  exchange  is  responsi- 
ble for  its  genuineness.  Tims,  in  Gompertz  v.  Bartlett,  decided 
in  1853,  it  was  held  by  the  Court  of  Queen's  Bench  that  the 
vendor  of  a  bill  of  exchange  impliedly  warrants  that  it  is  of  the 
kind  and  description  thai  it  purports  on  the  face  of  it  to  be. 
(24  Eng.  L.  and  E.  Rep.,  156;  23  L.  J.  Ex.,  65;  see  also  Challis 
v.  McCrum,  22  Kan.  L57;  Bell  v.  Dagg,  60  X.  Y.,  528;  Bell  v. 
Cafferty,  21  Ind.,  411.)  And  in  Gurney  and  others  v.  Womers- 
ley  (24  L.  J.,  Q.  B.,  46),  decided  in  1S">4  by  the  same  court,  it 
was  held  that  the  vendor  of  a  bill  of  exchange,  though  no  party 
to  the  bill,  is  responsible  for  its  genuineness;  and  if  it  turns  oul 
that  the  name  of  one  of  the  pat-ties  is  forged,  and  the  bill  he- 
comes  valueless,  he  is  liable  to  the  vendee,  as  upon  a  failure  of 
consideration.  Both  these  cases  were  decided  on  the  same  prin- 
ciple which  is  applied  in  sales  of  personal  property  generally, 
that  the  vendor  impliedly  warrants  that  the  article  sold  is  of  the 
kind  and  description  which  it  imports  and  is  understood  by  the 
parties  to  be. 

In  the  case  of  Baxter  v.  Duren  (29  Me.,  434),  supra,  it  was 
held  that  one  who  sells  a  promissory  note,  by  delivery,  open 
which  the  names  of  indorsers  have  been  forged,  is  not  liable  upon 
an  implied  promise  to  refund  the  money  received  therefor,  if  he 
sold  the  same  as  property,  and  not  in  payment  of  a  precedent 
debt,  and  did  not  know  of  the  forgery. 

The  same  doctrine  was  held  in  the  case  of  Ellis  v.  Wild  (6 
Mass.,  321),  where  the  same  distinction  was  made  between  the 
sale  of  the  note  and  its  transfer  in  payment  of  a  debt.  But  the 
doctrine  is  no  longer  maintained  in  that  commonwealth.  (Cabot 
Bank  v.  Morton,  4  Gray,  156;  Lobdell  v.  Baker,  1  Met.,  193; 
Merriam  v.  Wolcott,  3  Allen,  258.)  In  the  last  of  these  cases, 
Ellis  v.  "Wild  and  Baxter  v.  Duren  are  both  considered,  and,  for 
what  seems  to  us  good  reasons,  disapproved;  and  it  is  held  that 
there  is  no  valid  reason  for  the  distinction  taken  in  those  cases. 

In  Aldrich  v.  Jackson  (5  R.  I.,  218),  the  doctrine  is  expressly 
stated  that  "the  vendor  of  a  bill  or  note,  by  the  very  act  of 


MERRIAM    v.   WOLCOTT.  163 

sale,  impliedly  warrants  the  genuineness  of  the  signatures  of  the 
previous  parties  to  it." 

The  same  doctrine  is  held  in  Terry  v.  Bissel  (26  Conn.,  23), 
and  in  Thrall  v.  Newell  (19  Vt.,  202). 

And  the  principle  upon  which  these  decisions  rest  has  its 
foundation,  as  we  think,  in  reason  and  justice. 

In  the  sale  what  purports  to  be  a  promissory  note,  it  is  not 
the  material  substance  of  the  paper  and  ink  for  which  the  con- 
sideration is  understood  by  the  parties  to  be  paid,  but  it  is  the 
chose  in  action  of  which  the  note  purports  to  be  the  evidence, 
that  is  the  real  subject  of  negotiation  and  transfer.  But  if  the 
note  is  forged,  if  no  such  chose  in  action  exists,  if  the  vendor 
neither  owns  nor  parts  with  anything  of  the  kind,  it  is  difficult 
to  see  any  just  ground  upon  which  he  can  be  allowed  to  retain 
the  purchase  money.  He  has  undertaken  to  sell  what  he  did  not 
own,  and  that  which  in  fact  has  no  existence.  The  maxim  of 
caveat  emptor  is  inapplicable  to  such  a  case. 

The  present  case,  however,  is  much  stronger.  It  is  not  a  case 
of  sale  by  delivery  merely,  but  by  indorsement,  qualified,  it  is 
true,  so  as  to  exclude  the  liabilities  consequent  thereon  under 
the  commercial  law.  Still,  the  defendant  is  a  party  to  the  note, 
he  has  sold  and  transferred  it  as  such,  and  he  is  bound  to  make 
his  representation  good.  On  this  question  we  know  of  no  con- 
flict in  the  authorities. 

The  judgment  of  the  court  below  must  then  be  reversed,  the 
demurrer  to  the  plaintiff's  petition  overruled,  and  a  procedendo 
awarded. 


Liability  of  Person  Who  Transfers  by  Delivery  Only* 

MERRIAM  v.  WOLCOTT. 

3  Allen,  258.     1861. 

Contract  against  brokers  to  recover  back  money  paid  to  them 
for  two  notes  purporting  to  be  signed  by  II.  J.  Libby  &  Co.,  pay- 
able to  their  own  order,  and  indorsed  by  them. 

At  the  trial  in  the  Superior  Court  it  was  agreed  that  the  de- 


*  See  Sec.  839,  Vol.  6,  Cyclopedia  of  Law. 


164  LIABILITIES  OF  PARTIES. 

Pendants  received  the  notes  for  sale  from  E.  O.  Libby,  who  in- 
dorsed the  same,  they  advancing  to  him  $300  thereon,  and  on  the 
same  day  sold  them  to  the  plaintiff  without  indorsing  them  for 
$1,406.80,  which  sum.  deducting  the  $300  and  their  commissions, 
Ih.-v  paid  nvcr  to  E.  O.  Libby  on  the  same  day.  The  notes  were 
gold  for  a  price  less  than  their  face,  equal  to  a  discounl  of  twelve 
per  cent,  per  annum,  for  the  time  they  had  to  run,  to  which  was 
added  one-eighth  of  one  per  cent.,  which  was  equal  to  one-half 
of  the  defendants'  commissions.  The  plaintiff  knew  that  the 
defendants  acted  as  brokers  in  the  transaction,  but  the  name  of 
their  principal  was  no1  disclosed  or  asked  for.  The  signatures 
of  II.  J.  Libby  &  Co.  were  forged,  but  this  fact  was  not  known 
either  to  the  defendants  or  the  plaintiff  till  after  the  maturity  of 
the  notes.  No  assurance  was  given  or  asked  for  at  the  time  of  the 
sale,  that  the  signatures  were  genuine. 

Upon  these  facts  judgment  was  rendered  for  the  defendants, 
and  the  plaintiff  appealed  to  this  Court. 

Chapman,  J.     The  first   question   presented  by  this  ease  is 
whether  a  person  who  purchases  a  note  of  a  broker  for  cash,  and 
takes  the  note  by  delivery,  can  recover  back  the  money  paid  if  the 
maker's  signature  turns  out  to  be  forged.     The  text-books  state 
the  law  to  be  that  he  can  recover  it  back  on  the  ground  of  an  im- 
plied warranty  that  the  note  is  not  in  reality  what  it  purports 
to  be:     Bayley  on  Bills,  148;  Chitty  on  Bills  (10th  Amer.  ed.) 
245.     The  English  cases  are  referred  to  in  these  treatises.     The 
recent  case  of  Gurney  v.  Womersley,  4  El.  &  HI.  132,  asserts  the 
same  doctrine.     It  has  been  repeatedly  so  held   in  New  York: 
Markle  v.  Hatfield,  2  Johns.  4-"").");  Herrick  v.  Whitney,  15  Johns. 
240;  Shaver  v.  Ehle,  16  Johns.  201;  Murray  v.  Judah.  6  Cow. 
484;  Canal  Bank  v.  Bank  of  Albany,  1  Hill  (N.  Y.),  278.     It  is 
so  held  in  Rhode  Island :  Aldrich  v.  Jackson,  5  R.  I.  218.    Also  in 
Vermont:    Thrall  v.  Newell,  19  Verm.  202.     But  there  are  two 
cases  which  state  a  distinction  in  respect  to  this  implied  warranty 
that  is  not  recognized  in  the  other  cases.     The  first  is  Ellis  v. 
Wild,  0  Mass.  321.    The  plaintiff  had  purchased  of  the  defendant 
two  promissory  notes,  both  of  which,  without  the  knowledge  of 
either   party,   had    forged    indorsements.      They   were   taken    in 
payment   \'<>r  a  quantity  of  rum.     The  Court  held  that  if  it  was 
the  original  intent  of  the  plaintiff  to  buy  the  notes  and  to  make 


MERRIAM    v.    WOLCOTT.  165 

payment  in  rum,  the  defendant  was  not  liable;  but  if  the  pay- 
ment by  the  notes  was  not  a  part  of  the  original  stipulation,  but 
an  accommodation  to  the  defendant,  then  he  was  liable  on  the 
ground  that  he  had  not  paid  for  the  rum.  Some  early  English 
cases  are  referred  to  as  authorities  for  this  distinction.  The 
other  case  is  Baxter  v.  Duren,  29  Me.  434,  and  it  states  the  same 
doctrine. 

If  this  is  the  law  of  this  Commonwealth,  then  the  plaintiff  can- 
not recover ;  for  he  bought  the  notes  for  cash,  and  did  not  take 
them  in  payment  of  a  debt.  But  it  is  difficult  to  see  any  valid 
reason  for  such  a  distinction.  Whether  the  purchaser  pays  cash 
or  discharges  a  debt  in  payment  for  the  forged  paper  the  injury 
is  the  same  to  him.  There  is  in  both  cases  a  failure  of  considera- 
tion growing  out  of  a  mistake  of  facts.  The  actual  contract  and 
the  implied  understanding  as  to  the  genuineness  of  the  note  is 
in  both  cases  the  same.  And  we  think  that  the  authorities  which 
hold  the  seller  to  an  implied  warranty,  in  such  case,  that  the  note 
is  genuine,  are  in  conformity  with  the  principles  of  sound  reason 
and  justice,  and  with  the  understanding  of  the  parties  in  making 
such  a  contract.  In  Cabot  Bank  v.  Morton,  4  Gray,  156,  the  case 
of  Ellis  v.  Wild  is  not  noticed ;  but  it  is  held  that  one  who  gets 
a  note  discounted  at  a  bank  without  indorsing  it  impliedly  war- 
rants that  its  signatures  are  genuine.  The  two  cases  are  therefore 
contradictory.  The  doctrine  held  in  Lobdell  v.  Baker,  1  Met. 
193,  in  effect  goes  beyond  any  of  the  cases  cited.  The  note  sold 
was  indorsed  by  a  minor.  It  was  held  that  upon  the  sale  there 
was  an  implied  warranty  that  the  indorsement  was  by  a  person 
capable  of  binding  himself  by  a  valid  contract.  A  warranty 
which  goes  to  that  extent  includes  the  idea  that  there  is  a  genuine 
signature.  In  that  case  the  note  was  not  sold  to  pay  a  debt,  but 
for  cash,  and  that  point  was  not  regarded  as  material. 

2.  Another  question  raised  is  whether  the  fact  that  the  de- 
fendant made  the  sale  as  a  broker,  but  without  disclosing  the 
name  of  his  principal,  relieves  him  from  his  liability.  The  au- 
thorities establish  his  liability  as  principal:  2  Kent  Com.  (6th 
ed.)  630;  Gurney  v.  Womersley,  Canal  Bank  v.  Bank  of  Albany, 
Cabot  Bank  v.  Morton,  ubi  supra. 

3.  A  third  question  is  whether  he  is  relieved  from  his  liability 
by  the  fact  that  he  had  paid  over  the  money  to  his  principal  be- 


166  LIABILITIES  OF  1 'ARTIES. 

fore  it  was  demand*  <l  by  the  plaintiff.  We  think  he  is  not,  there 
having  been  no  unreasonable  delay  in  giving  him  notice  of  the 
forgery  after  it  was  discovered:  Canal  Bank  v.  Bank  of  Albany, 
ubi  supra;  Fuller  v.  Smith,  By.  &  .Mood.  49. 

And  we  think  the  deduction  made  to  the  purchaser  of  the 
notes  does  not  alter  the  nature  of  the  transaction.  It  did  not,  as 
the  defendants  contend,  create  a  partnership  in  the  commissions, 
but  merely  fixed  the  amount  to  be  paid  for  the  notes. 

Judgnu  nl  for  the  plaintiff. 


What  Witt  Operatt  to  Vischargt  th(  Liability  of  Parties  to  a  Bill 
or  Note. — Forgery  and  Alterations  as  a  Discharge* 

MEAD  v.  YOUNG. 

4  Term.  Rep.  28.     1790. 

This  was  an  action  brought  by  the  indorsee  of  a  bill  of  ex- 
change for  90L  against  the  acceptor.  The  bill  was  drawn  at  Dun- 
kirk by  Christian  on  the  defendant  in  London,  payable  "to 
Henry  Davis,  or  order;"  and,  having-  been  put  into  the  foreign 
mail  inclosed  in  a  letter  from  Christian,  it  got  into  the  hands  of 
another  Henry  Davis  than  the  one  in  whose  favor  it  was  drawn. 
The  defendant  accepted  the  bill;  and  when  Davis  desired  the 
plaintiff,  to  discount  it,  the  latter  made  application  to  the  de- 
fendant to  know  whether  or  not  it  was  his  acceptance?  and,  on 
receiving  an  answer  in  the  affirmative,  coupled  with  an  assurance 
that  it  was  a  good  bill,  he  discounted  it,  not  knowing  the  II.  Davis 
from  whom  he  took  it.  There  was  no  ground  to  impute  any 
fraud  to  the  plaintiff.  On  the  trial  before  Ld.  Kenyon,  after 
the  plaintiff  had  proved  the  defendant's  handwriting,  and  the 
indorsement  by  Davis,  the  defendant  offered  evidence  to  show 
that  the  II.  Davis  who  indorsed  to  the  plaintiff,  was  not  the  real 
II.   Davis  in  whose  favor  the  bill  was  drawn:  but  Ld.  Kenyon 


*  See  Sees.  841-843,  Vol.  6,  Cyclopedia  of  Law. 


MEAD    v.   YOUNG.  167 

being  of  opinion  that  such  evidence  was  inadmissible,  the  plaintiff 
recovered  a  verdict.  A  rule  having  been  obtained  to  show  cause 
why  a  new  trial  should  not  be  granted  on  this  misdirection. 

Ld.  Erskine  for  the  plaintiff  argued  that,  if  there  had  been 
any  particular  description  of  the  payee  on  the  bill,  the  plaintiff 
must  have  taken  care  that  the  person  from  whom  he  received  it 
answered  the  whole  of  the  description ;  but  there  was  no  descrip- 
tion of,  or  addition  to,  the  H.  Davis ;  there  was  nothing  on  the 
bill  to  lead  either  the  acceptor  or  any  third  person  to  suspect  that 
the  H.  Davis,  who  was  in  possession  of  the  bill,  was  not  the  real 
payee.  And,  so  far  from  the  plaintiff's  having  incurred  any 
charge  of  neglect,  he  seems  to  have  taken  more  than  ordinary 
caution  in  making  inquiries  of  the  acceptor  before  he  discounted 
the  bill.  There  is  no  pretense  to  impute  either  fraud  or  neglect 
to  the  plaintiff;  he  stands  in  the  situation  of  an  innocent  pur- 
chaser for  a  valuable  consideration.  This  case  therefore  falls 
within  the  common  rule,  that,  where  one  of  two  innocent  persons 
must  suffer  by  the  fraud  of  another,  the  loss  must  be  borne  by 
him  who  enabled  the  party  to  commit  the  fraud ;  and  in  this  case 
that  person  is  Christian,  who  ought  to  have  described  the  payee 
more  particularly. 

In  support  of  the  rule  it  was  argued  that,  a  party,  purchasing 
a  bill  of  exchange,  is,  like  the  purchaser  of  any  other  species  of 
property,  bound  to  inquire  into  the  title  of  him  from  whom  he 
buys.  No  person  can  derive  title  to  this  bill  but  he  who  claims 
under  the  real  H.  Davis :  and  it  is  indifferent  whether  the  person 
indorsing  the  bill  be  or  be  not  of  the  same  name  with  the  real 
payee;  in  neither  case  can  any  property  be  transferred  but  by 
him  who  has  the  title.  If  he  bear  the  same  name,  prima  facie 
indeed  he  may  be  presumed  to  be  the  same  person,  till  the  con- 
trary be  shown:  but  here  the  question  was,  whether  evidence 
should  not  have  been  received  to  prove  the  contrary?  If  such 
evidence  be  not  admissible,  it  will  follow  that  payment  to  a  person 
of  the  same  name  with  a  legatee  would  discharge  the  executor,  or 
a  payment  by  a  debtor  to  any  person  who  had  the  same  name  as 
his  creditor :  but  that  cannot  be  pretended.  This  bill  was  drawn 
in  order  to  satisfy  a  debt  due  from  Christian  to  the  real  H. 
Davis ;  and  yet  payment  of  this  bill  to  the  plaintiff  can  never  be 
considered  as  a  discharge  of  that  debt,  without  the  indorsement  of 


168  LIABILITIES    OF    PARTIES. 

that  II.  Davis.  In  all  cases  where  a  bill  is  drawn  payable  to  A. 
B.  or  order,  it  is  indispensably  necessary  to  prove  the  handwrit- 
ing of  thi'  payee,  which  was  no1  in  fad  done  in  this  instance.  The 
necessity  of*  this  proof  is  apparenl  from  the  form  of  the  declara- 
tion: which  after  alleging  thai  the  bill  was  drawn  in  favor  of  II. 
Davis,  avers  that  the  said  II.  Davis  afterwards  indorsed  to  the 
plaintiff.  If  the  negligence  of  cither  of  the  parties  be  resorted 
to  as  a  ground  for  the  determination  of  this  case,  the  plaintiff 
seems  to  have  been  guilty  of  the  greatest  negligence  in  taking  a 
bill  from  a  person  whom  he  did  not  know,  whereas  the  transac- 
tion, as  far  as  Christian  was  concerned,  was  carried  on  in  the 
ordinary  course  of  business.  There  is  also  another  objection  to 
the  plaintiff's  recovering,  because  he  claims  through  a  forgery: 
For  the  H.  Davis,  who  received  the  bill,  inclosed  in  a  letter  from 
Christian,  must  have  known  that  it  was  not  intended  for  him ; 
and  the  circumstance  of  his  bearing  the  same  name  with  the 
payee  would  be  no  defence  to  him  on  a  prosecution  for  forgery, 
since  he  put  a  false  signature  to  an  instrument  with  intent  to  de- 
fraud. 

The  question  here  is,  Whether  the  name  of  H.  Davis,  to  whom 
the  bill  on  the  face  of  it  was  payable,  shall  or  shall  not  convey  a 
title  to  this  plaintiff  who  gave  a  valuable  consideration  for  it,  and 
who  discounted  it  with  the  name  of  H.  Davis  upon  it,  and  with 
an  assurance  from  the  defendant  that  it  was  accepted  by  him? 
If  any  fraud,  or  even  neglect,  could  be  imputed  to  the  plaintiff, 
that  would  vary  the  case;  but,  circumstanced  as  these  parties 
were,  I  think  that,  if  the  plaintiff  cannot  recover,  it  will  put 
an  insuperable  clog  on  this  species  of  property.  I  cannot  dis- 
tinguish this  case  on  principle  from  that  of  Miller  v.  Race 
(1  Burr.,  452  (1758)),  where  the  innocent  holder  of  a  note, 
which  had  been  taken  when  the  mail  was  robbed,  was  held  en- 
titled to  recover ;  that  indeed  was  a  note  payable  to  bearer,  but 
still  the  same  principle  must  govern  both  cases.  In  this  case 
the  fault  originated  with  the  drawer  of  the  bill,  in  not  de- 
scribing more  particularly  the  person  to  whom  he  intended  it 
should  be  paid.  The  plaintiff  was  not  bound  to  send  to  Dun- 
kirk to  know  whether  the  person,  who  had  possession  of  the  bill, 
was  or  was  not  the  real  II.  Davis.  There  may  indeed  be  some 
inconvenience  the  other  way;    but  setting  the  inconvenience  on 


MEAD    v.   YOUNG.  169 

the  one  side  against  that  on  the  other,  in  my  apprehension  it 
would  throw  too  great  a  burden  on  persons  taking  hills  of  ex- 
change to  require  proof  of  an  indorsee  that  the  person  from 
whom  he  received  the  bill  was  the  real  payee.  Such  proof  has 
never  yet  been  required  of  an  indorsee  in  such  an  action :  and 
therefore  I  think  that,  as  there  was  no  fraud,  or  want  of  due 
diligence  on  the  part  of  the  plaintiff,  he  is  entitled  to  recover; 
however,  I  give  this  opinion  with  some  diffidence,  as  my  brothers 
have  intimated  that  they  are  of  a  different  opinion. 

Ashhukst,  J.,  said,  "This  is  a  case  of  considerable  import- 
ance; and  I  think  that  we  ought  to  grant  a  new  trial,  that  the 
parties  may  have  an  opportunity  of  putting  the  question  on 
the  record.  The  present  inclination  of  my  opinion  is  with  the 
defendant.  In  order  to  derive  a  legal  title  to  a  bill  of  ex- 
change, it  is  necessary  to  prove  the  hand- writing  of  the  payee; 
and  therefore  though  the  bill  may  come  by  mistake  into  the 
hands  of  another  person,  though  of  the  same  name  with  the 
payee,  yet  his  indorsement  will  not  confer  a  title.  Such  an 
indorsement,  if  made  with  the  knowledge  that  he  is  not  the 
person  to  whom  the  bill  was  made  payable,  is  in  my  opinion  a 
forgery;  and  no  title  can  be  derived  through  the  medium  of  a 
fraud  or  forgery.  This  is  distinguishable  from  the  case  of 
Miller  v.  Race;  for  there  the  note  was  payable  to  bearer.  In 
such  cases  the  bearer,  who  purchases  for  a  valuable  considera- 
tion, and  without  notice  of  any  fraud,  is  entitled  to  receive  the 
contents  of  the  bill;  and  payment  to  him  is  a  discharge  to  the 
drawer.  But  in  this  case  the  bill  was  drawn  payable  to  H. 
Davis,  or  order;  and  though  the  name  of  H.  Davis  was  indorsed 
on  the  bill,  yet  it  was  incumbent  on  the  plaintiff,  who  claims 
through  the  payee,  to  be  satisfied  that  that  was  the  indorsement 
of  the  real  payee." 

Buller,  J.,  said,  "As  the  bill  in  this  case  is  of  great  value, 
the  parties  may  put  this  question  in  a  mode  to  be  decided  by 
the  dernier  resort.  As  at  present  advised,  I  entertain  the  same 
opinion  as  my  Brother  Ashhurst.  If  we  were  to  inquire  whether 
any  laches  were  to  be  imputed  to  the  plaintiff  or  the  drawer, 
I  rather  think  the  plaintiff  is  more  in  fault  than  any  other 
person,  in  advancing  his  money  to  H.  Davis,  who  was  a  total 
stranger  to  him.     But,  without  going  into  any  such  inquiry,  I 


170  LIABILITIES  OF  PARTIES. 

am  of  opinion  that  it  is  incumbent  on  a  plaintiff,  who  sues  on 
a  bill  of  exchange,  to  prove  the  indorsement  of  the  person  to 
whom  it  is  really  payable.  The  general  form  of  the  declaration 
shows  thai  it  is  so;  for  that  is  that,  'the  said  A.  B.  to  whom, 
or  to  whose  order,  the  paymenl  of  the  said  sum  of  money 
mentioned  in  the  said  bill  was  to  be  made,  afterwards,  etc.,  in- 
dorsed the  said  bill,  his  own  proper  hand-writing  being  thereto 
subscribed.'  Now  here  it  is  clear  that  the  indorsement  was  not 
made  by  the  same  11.  Davis  to  whom  the  bill  was  made  pay- 
able; and  no  indorsement  by  any  other  person  will  give  any 
title  whatever.  Then,  is  there  any  thing  in  this  case  that  estops 
the  defendant  from  saying  that  the  person  who  indorsed  to 
him  (plaintiff)  was  not  the  real  payee?  Now  the  act  of  that 
person  who  indorsed,  and  who  in  so  doing-  was  guilty  of  a  for- 
gery, cannot  prevent  an  innocent  person  from  showing  the 
truth. 

"Then  it  was  argued  that  Christian  was  guilty  of  negligence, 
in  not  describing  more  particularly  the  payee;  but  I  know  of 
no  authority  which  requires  that  to  be  done.  This  bill  was 
drawn  in  the  common  form,  payable  'to  II.  Davis  or  order;' 
and  the  drawer  could  not  foresee  that  it  would  get  into  the  pos- 
session of  any  other  II.  Davis.  If  any  other  stranger  had  re- 
ceived this  bill,  and  indorsed  it  over  to  the  plaintiff,  it  is  not 
pretended  that  such  indorsement  would  have  conveyed  any  title 
to  the  bill,  and  it  cannot  make  any  difference  whether  such 
stranger  bear  the  same  name  with  the  real  payee  or  not;  for 
no  person  can  give  title  to  a  bill  but  he  to  whom  it  is  made 
payable.  Independently  of  these  reasons,  I  think  that  conven- 
ience requires  thai  the  determination  should  be  in  favor  of  the 
defendant.  I  have  no  difficulty  in  saying  this  II.  Davis,  know- 
ing that  the  bill  was  not  intended  for  him,  was  guilty  of  a 
forgery ;  for  the  circumstance  of  his  bearing  the  same  name 
with  the  payee  cannot  vary  this  case,  since  he  was  not  the 
same  person.  Then  if  the  plaintiff  cannot  recover  on  this  bill, 
he  will  be  induced  to  prosecute  the  forger;  and  that  would  be 
the  case  even  if  it  had  passed  through  several  hands,  because 
each  indorser  would  trace  it  up  to  the  person  from  whom  he 
received  it,  and  at  last  it  would  come  to  him  who  had  been 
guilty  of  the  forgery;  whereas  if  the  plaintiff  succeed  in  this 


MEAD  v.   YOUNG.  171 

action,  he  will  have  no  inducement  to  prosecute  for  the  forgery : 
the  drawer,  on  whom  the  loss  would  in  that  case  fall,  might 
have  no  means  of  discovering  the  person  who  committed  the 
forgery,  and  thus  he  would  probably  escape  punishment.  As 
far,  therefore,  as  convenience  can  have  any  effect,  it  weighs 
strongly  with  me  to  receive  the  evidence.  But  at  all  events 
the  plaintiff  cannot  recover,  since  he  derives  his  title  under  a 
forgery. ' ' 

Grose,  J.,  said,  "I  am  of  opinion  that  it  was  competent  to 
the  defendant  to  show  in  evidence  that  the  person,  who  indorsed 
to  the  plaintiff,  was  not  the  person  named  as  the  payee  in  this 
bill  of  exchange;  and  I  form  that  opinion  as  well  on  the  sub- 
stance of  the  transaction  as  on  the  form  of  pleading  in  such 
cases.  A  bill  of  exchange  is  only  a  transfer  of  a  chose  in  action 
according  to  the  custom  of  merchants ;  it  is  an  authority  to  one 
person  to  pay  to  another  the  sum  which  is  due  to  the  first,  and 
it  is  generally  directed  to  be  paid  to  the  payee  or  his  order. 
When  the  person,  on  whom  it  is  drawn,  accepts,  he  only  engages 
by  the  terms  of  his  acceptance  to  pay  the  contents  of  the  bill 
to  the  person  named  in  it,  or  to  his  order.  The  general  form 
of  the  declaration,  which  is  to  be  found  in  some  of  the  old 
entries,  also  agrees  with  this  doctrine,  and  points  out  what  the 
law  is. 

"I  observe  indeed  that  this  declaration  is  not  drawn  in  the 
usual  form,  for  the  words  'to  whom  or  to  whose  order'  are 
omitted;  but  still  it  is  that  the  said  H.  Davis,  that  is  the  same 
H.  Davis  who  is  mentioned  in  the  former  part  of  the  declaration 
as  the  payee,  indorsed  to  the  plaintiff.  It  clearly,  therefore,  ap- 
pears that  as  no  person  can  demand  payment  of  a  bill  of  ex- 
change but  the  payee,  or  the  person  authorized  by  him,  the  ac- 
ceptor only  undertakes  to  pay  to  them,  and  cannot  be  compelled 
to  pay  to  any  other  person.  If  he  pay  the  amount  of  the  bill 
to  any  other  person,  he  pays  it  in  his  own  wrong,  and  such  pay- 
ment does  not  discharge  his  debt  to  the  drawer.  If  this  decision 
will  prove  a  clog  on  the  circulation  of  bills  of  exchange,  I  think 
it  will  be  less  detrimental  to  the  public,  than  permitting  persons 
to  recover  through  the  medium  of  a  forgery.  And  that  this 
was  a  forgery  cannot  be  doubted,  if  we  consider  the  definition  of 
it;  which  is,  the  false  making  of  any  instrument,  indorsement, 


172  LIABILITIES  OF   PARTIES. 

etc.,  with  intent  to  defraud.  (Vid.  2  Geo.  2  c,  25  S.  1.)  It 
makes  no  difference  whether  the  person  making  this  false  in- 
dorsement was  or  was  tiol  of  the  same  name  with  the  payee,  since 
he  added  the  signature  of  II.  Davis,  with  a  view  to  defraud,  and 
blowing  thai  he  was  not  the  person  for  whom  the  bill  was 
intended.  1  agree  also  with  my  Brother  Buller,  that  this  decision 
will  be  more  convenienl  to  the  public;  because  then  the  plaintiff 
will  prosecute  the  person,  who  indorsed  to  him,  for  the  forgery. 
For  these  reasons  I  am  of  opinion  that,  as  this  bill  of  exchange 
was  only  payable  to  the  payee  or  his  order,  it  was  competent 
Pi  the  defendant,  the  acceptor,  to  inquire  whether  the  person 
under  whom  the  plaintiff  claims,  was  or  was  not  the  payee." 

Rule  absolute. 


HARSH  ET  AL.  v.  KLEPPER. 

28  Ohio  St.  200.     1876. 

Wright,  J.  This  was  an  action  upon  a  promissory  note,  dated 
April  15,  18G5,  at  one  year,  which  Harsh  had  signed  as  surety 
for  the  other  makers,  John  U.  Tressell  and  L.  R.  Tressed. 

The  defense  of  Harsh  was:  First,  that  after  he  had  signed 
the  note  and  it  had  been  delivered,  it  was  altered  in  this,  that 
the  rate  of  interest  was  changed  from  six  to  seven  per  cent.  It 
was  claimed  and  the  jury  found  that  the  alt  mat  ion  was  made 
by  John  II.  Tressell,  one  of  the  principal  makers,  with  the  con- 
sent or  by  the  direction  of  plaint  ill',  without  intent  to  injure  or 
defraud  Harsh,  but  without  his  knowledge  or  consent. 

It  is  claimed  that  this  is  a  material  alteration,  and  such  as 
discharges  1  [arsh,  the  surety. 

There  was  a  further  defense,  to  the  effect  that,  after  the  note 
became  due,  the  plaintiff  agreed  with  the  principals  to  extend 
the  time  of  payment  for  two  years,  without  the  knowledge  or 
consent  of  the  surety,  and  therefore  he  claims  to  be  discharged. 

As  the  decision  does  not  rest  upon  this  second  defense,  it  is 
merely  mentioned  without-  further  discussion. 

The  issue  upon  the  first  defense,  of  material  alteration,  hav- 
ing been  made,  evidence  was  given  tending  to  show  that  fact. 


HARSH   ET   AL.  v.   KLEPPER.  173 

Whereupon  said  Philip  Harsh  asked  the  Court  to  charge  the 
jury  thai  if  they  should  find  that  said  note  had  been  altered 
as  above  staled,  by  changing  the  rate  per  cent,  from  "six""  to 
"seven,"  at  the  request  of  the  said  plaintiff,  and  without  the 
knowledge  or  consent  of  said  surety,  that  then  the  said  surety 
was  released  from  his  Liability  on  said  note. 

This  instruction  the  Court  refused,  but  the  Court  did  eharge 
the  jury  that  "the  alteration  of  the  note  sued  on,  at  the  time 
of  or  soon  after  its  maturity,  by  and  at  the  original  suggestion 
of  John  II.  Tressell,  one  of  the  makers  and  principals  thereof, 
by  erasing  the  word  'six'  in  said  note  as  originally  written, 
and  writing  in  its  stead  the  word  'seven,'  so  as  to  make  the 
note  read  'seven  per  cent,  interest  from  date,'  instead  of  'six 
per  cent,  interest  from  date,'  although  such  alteration  was  actu- 
ally made  in  the  presence  of  and  with  the  consent  and  by  the 
direction  of  the  said  plaintiff,  payee  and  owner  of  said  note,  and 
without  the  knowledge  or  consent  of  said  surety,  Harsh,  would 
not  prevent  the  plaintiff  from  recovery  on  said  note  against  said 
surety,  Harsh,  unless  the  plaintiff  at  the  time  of  giving  such 
consent  and  direction,  in  fact,  designed  and  intended  thereby  to 
injure  and  defraud  the  said  Harsh.  If  such  consent  or  direc- 
tion to  make  such  alteration  was  given  by  said  plaintiff,  and  he 
at  the  time,  in  fact,  intended  thereby  to  injure  and  defraud  the 
said  Harsh,  you  should  find  a  verdict  for  the  said  Harsh. ' ' 

The  question  then  is,  is  a  change  in  the  rate  of  interest,  made 
by  the  principals  with  the  consent  of  the  holder  and  owner,  but 
without  the  knowledge  or  consent  of  the  surety,  a  material  alter- 
ation and  such  as  will  avoid  the  note,  as  against  the  surety, 
though  no  fraudulent  intent  in  such  alteration  appear. 

The  question  appears  to  be  well  settled  upon  authority. 

In  the  case  of  Wallace  &  Park  v.  Jewell,  21  Ohio  St.  163,  the 
name  of  another  person  as  maker  was  added  to  the  note  after 
its  delivery,  and  this  was  held  to  be  such  material  alteration 
as  to  vitiate  the  paper  against  the  other  makers.  Says  White, 
J.  (p.  174),  "Such  an  addition  gives  a  different  legal  character 
to  the  instrument.  The  defendants  might,  by  the  altered  con- 
dition of  the  note  now  in  question,  have  been  subjected  to  change 
of  jurisdiction  in  the  event  of  any  litigation  arising  in  relation 
to  it  between  the  parties." 


174  LIABILITIES    OF    PARTIES. 

In  the  ease  of  Boalt  v.  Brown,  13  Ohio  St.  364,  the  note  prom- 
ised to  pay  $500  "in  ten  days'  notice,  ;it  ten  per  cent.;"  the 
words  added  were  "with  interesl  annually."  It  was  held  that 
this  was  a  material  alteration  and  discharged  a  surety.  This 
addition  gave  the  payee  tin'  righl  to  collect  interest  annually, 
while  without  it,  interesl  could  only  have  been  collected  with  the 
principal,  and  neither  withoul  ten  days'  notice. 

In  this  case  it  is  held  that  the  intent  with  which  the  alteration 
is  made  cannot  vary  the  result  ;  the  contract  is  not  the  contract 
which  the  surety  signed;  the  terms  of  the  altered  note  were 
never  assented  to  by  him,  and  he  is  not  therefore  hound.  In 
Patterson  v.  McNeely's  Adm'rs,  16  Ohio  St.  348,  the  note  had 
this  clause:  "  The  above  to  be  a1  ten  percent,  interest  annually. " 
The  alteration  consisted  in  inserting  the  word  "paid,"  before 
"annually,"  so  as  to  make  the  note  read  "ten  per  cent,  paid  an- 
nually." This  was  held  to  be  a  material  alteration  which  dis- 
charged a  surety.  The  added  word  required  that  the  interest 
should  be  paid  at  the  end  of  each  year,  and  if  not  so  paid,  inter- 
est mighl  he  computed  upon  the  interest,  which  could  not  he 
done  as  the  note  stood  originally.  The  note  therefore  was  not 
the  note  the  surety  had  signed. 

In  the  case  of  Brown  v.  Jones,  3  Porter  (Ala.),  429,  the  words 
added  were  "with  interest  from  the  date."  This  was  held  to  be 
a  material  alteration.  In  this  case  the  defendant  was  the  maker 
of  the  note,  and  his  plea  was  held  good.  In  Boalt  v.  Brown, 
13  Ohio  St.  364,  and  Patterson  v.  McNeely,  16  Ohio  St.  348, 
the  defendants  were  sureties  seeking  to  defend  themselves.  In 
Warrington  v.  Early,  2  El.  &  Bl.  763,  a  note  was  made  payable 
"with  lawful  interest;"  subsequently,  without  the  assent  of  the 
maker,  there  was  added  in  the  corner  of  the  note,  "interest  at 
six  per  cent,  per  annum."  Held  to  be  a  material  alteration,  and 
no  recovery  could  be  had  against  the  maker. 

In  Waterman  v.  Vose,  43  Ale.  504,  the  words  "with  interest" 
were  added.  Defendant  was  an  accommodation  indorser,  and 
the  addition  was  held  to  discharge  him.  The  Court  below  had 
said  that  if  the  addition  was  made  without  fraud,  the  defend- 
ant would  not  be  discharged.  This  ruling,  however,  was  re- 
versed by  the  Supreme  Court  of  Maine  stating  the  grounds  of 
the  doctrine  to  be  two-fold.     The  first,  that  of  public  policy,  to 


HARSH  ET  AL.   v.  KLEPPER.  175 

prevent  fraud,  by  not  permitting  a  man  to  take  the  chance  of 
committing  a  fraud  without  the  risk  of  losing,  if  detected. 
The  other,  to  insure  the  identity  of  the  instrument,  and  pre- 
vent the  substitution  of  another,  without  consent  of  the  party 
concerned.  This  is  the  ground  assumed  by  Mr.  Greenleaf,  1 
Greenl.  Ev.,  §  565.  The  Court  say:  "In  this  case  the  defend- 
ant assumed  a  liability  for  the  sum  of  $260  at  the  end  of  seven 
months,  and  no  other.  The  alteration  made  the  note  for  a  larger 
sum  at  the  same  time. ' ' 

In  McGrath  v.  Clark,  56  N.  Y.  34,  defendant  indorsed  a 
promissory  note  with  the  time  and  place  of  payment  in  blank, 
and  delivered  the  same  to  the  maker,  who  filled  the  blanks  and 
added  the  words  "with  interest."  It  was  held,  that  though 
the  maker  was  authorized  to  fill  the  blanks  as  to  time  and  place 
of  payment,  yet  he  was  not  authorized  to  add  the  words  "with 
interest,"  and  it  was  such  a  material  alteration  as  discharged 
the  indorser.  The  Court  say  that  the  maker  had  no  more  right 
to  add  the  words  "with  interest,"  than  to  increase  the  amount 
of  the  note.  That  was  already  fixed  at  so  many  dollars,  and 
adding  interest  would  necessarily  increase  such  amount. 

In  Dewey  v.  Reed,  40  Barb.  16,  the  note  was  already  drawn 
"with  interest,"  but  afterward  this  was  added,  "interest  to  be 
paid  semi-annually."  This  was  such  a  material  alteration  as 
invalidated  the  note  against  a  surety. 

In  Fay  v.  Smith,  1  Allen,  477,  it  is  held  that  the  alteration 
of  a  note  by  the  addition  of  the  words  "with  interest"  avoids 
the  note  as  to  such  promisors  as  do  not  consent  thereto,  although 
the  alteration  is  made  without  fraudulent  intent.  In  its  opinion 
the  Court  say:  "There  seems  to  be  no  difference  in  principle 
between  this  case  and  one  where  a  note  should  be  signed  by  two 
persons  for  the  sum  of  $300,  and  one  of  them,  supposing  he  had 
authority  from  the  other,  but  really  without  his  consent,  should 
strike  out  the  words  'three  hundred  dollars,'  and  insert  in  their 
place  'five  hundred  dollars,'  and  then  negotiate  the  note.  The 
other  signer  would  be  wholly  discharged,  not  on  the  ground  of 
fraud  or  forgery,  but  of  want  of  authority  to  bind  him.  The 
note  used,  he  did  not  execute;  the  note  which  he  executed  was 
never  used,  but  was  destroyed  by  the  alteration  and  another  sub- 
stituted for  it. ' ' 


176  LIABILITIES  OF  PARTIES. 

In  Lee  v.  Staboid,  55  Me.  491,  the  note  was  "on  demand  and 
interest,"  and  the  words  "at  nine  per  cent."  were  added,  and 
rendered  the  note  void. 

Two  cases  in  33  .Missouri  held  that  the  addition  of  the  words 
"bearing  ten  per  cent,  interest,"  avoids  the  note:  Ivory  v. 
Campbell,  33  Mo.  398;  Presbury  v.  Michael,  33  Mo.  542. 

In  Hart  v.  Clouser,  30  Ind.  210,  the  addition  of  a  clause  fixing 
the  rate  of  interest  was  held  to  avoid  the  note  as  to  a  surety. 

These  authorities,  and  others  that  might  be  cited,  .dearly  estab- 
lish the  proposition  that  such  an  alteration  as  thai  alleged  in  this 
case  is  material,  and  operates  to  discharge  the  surety,  entirely 
in, I,  pendent  of  any  question  of  intent.  But  here  we  are  met  by 
this  objection.  The  alteration  from  six  to  seven  per  cent,  was 
an  alteration  in  terms,  but  did  not  change  the  legal  eft'eet  of  the 
note.  Under  the  interest  laws  of  the  State,  no  more  than  six  per 
cent,  could  be  recovered.  A  contract,  therefore,  for  seven  per 
cent,  was  void,  and  a  specification  of  that  rate  in  the  note  was 
altogether  nugatory,  and  did  not  vary  the  import  of  the  paper. 

The  contract  is  certainly  changed  in  words,  though  perhaps 
the  law  will  not  enforce  it  as  to  the  usurious  part  of  the  interest. 
It  is  rather  a  case  of  defective  remedy.  The  interest  law  says 
that  parties  shall  be  entitled  to  receive  interest  at  the  rate  of 
six  pel-  cent,  per  annum,  and  no  more:  1  S.  &  C.  742.  Of  course, 
that  means  they  shall  receive  no  more  at  the  hands  of  the  law. 
But  parties  are  not  prevented  from  making  contracts  for  higher 
rates  of  interest  and  keeping  them,  if  they  choose  so  to  do,  though 
the  law  may  not  compel  them.  As  is  said  in  Rains  v.  Scott,  they 
are  contracts  "which  the  parties  were  not  forbidden  to  make.*' 
Under  the  statute  of  frauds  there  are  certain  parol  contracts 
upon  which  an  action  cannot  be  maintained,  yet  the  contracts 
are  not  absolutely  void:  Mims  v.  Minis,  15  Ohio,  671;  Woods  v. 
Dille,  11  Ohio,  45.1.  But  if  it  be  that  the  contract  for  seven  per 
cent,  is  illegal,  and  therefore  the  import  of  the  paper  ts  not 
changed,  but  remains  at  six  per  cent,  still,  then  certainly  that 
alt.  ration  which  changes  the  note  from  a  legal  to  an  illegal  con- 
tract, must  be  a  material  alteration. 

The  contract  was  for  six  per  cent. ;  it  is  now  seven.    It  cannot 
be  the  same  thing  if  one  was  legal  and  the  other  not. 

The  argument,  therefore,  which  proves  the  alteration  not  ma- 


HARSH    ET    AL    v.    KLEPPER.  177 

terial,  by  showing  that  the  legal  import  of  the  paper  is  the  same, 
whether  the  rate  be  six  or  seven,  answers  itself,  when  it  also 
shows  that  the  contract  at  six  is  lawful  and  at  seven  is  not. 

This  illustration  may  serve  to  show  what  is  meant  by  varying 
the  legal  import  of  paper. 

A  note  is  given  containing  the  words  "with  interest."  Upon 
examining  it  subsequently,  the  recipient,  perhaps  not  being  well 
versed  in  the  law,  says  to  himself :  "I  was  to  have  six  per  cent, 
interest,  and  this  does  not  say  so.  The  intention  of  the  parties 
is  not  fully  expressed." 

He  therefore  inserts  the  word  "six."  This  could  not  be 
claimed  to  be  a  material  alteration.  The  note  only  now  expresses 
what  the  parties  had  before  intended.  And  this  is  a  just  cri- 
terion. If  the  alteration  only  says  what  the  parties  meant,  it  is 
a  harmless  one.  But  can  it  be,  in  the  case  at  bar,  that  the  change 
only  expressed  what  the  parties  meant  in  the  first  place?  Can 
it  be  claimed  that  when  six  was  originally  written  seven  was 
meant  ?  Or  does  the  note,  in  its  new  shape,  evince  the  idea  as  it 
was  at  the  time  of  the  execution  of  the  paper? 

Another  consideration  shows  the  materiality  of  this  alteration. 
If  this  note  were  sued  on  in  New  York,  where  the  legal  rate  is 
seven  per  cent.,  that  rate  of  interest  could  be  recovered,  unless 
the  defense  was  made  that  such  recovery  was  against  the  law  of 
Ohio,  where  the  paper  was  executed.  The  defendant  would  then 
be  put  to  the  trouble  and  expense  of  proving  what  the  law  of 
Ohio  was,  as  he  would  be  compelled  to  prove  any  other  fact. 
And  an  alteration  that  required  a  defendant  to  furnish  other  or 
different  proof  is  material.  So  any  alteration  which  changes 
the  evidence  or  mode  of  proof  is  material :  2  Pars.  N.  &  B.  564- 
582. 

We  conclude,  therefore,  that  this  is  a  material  alteration.  The 
identity  of  the  paper  is  destroyed  and  the  surety  has  the  right 
to  say,  in  hoc  foedere  non  veni. 

The  defendant  made  a  motion  for  judgment  non  obstante. 
The  special  verdict  of  the  jury  found,  in  answer  to  the  third 
interrogatory,  that  the  note  was  altered  by  one  of  the  principals 
with  the  consent  or  hy  the  direction  of  the  plaintiff,  and  in 
answer  to  the  fifth,  that  it  was  without  the  consent  of  the  surety, 
Harsh. 


178  LIABILITIES    OF    PARTIES. 

As  we  understand  the  law,  a  material  alteration  of  a  note, 
by  a  principal,  with  the  consent  of  the  owner  and  holder,  and 
without  the  consent  of  the  surety,  discharges  such  surety. 

By  §  277  of  the  Code,  "when  the  special  finding  of  facts  is 
inconsistent  with  the  general  verdict,  the  former  controls  the 
latter,  and  the  Court  may  give  judgment  accordingly."  Upon 
these  findings,  therefore,  the  defendant  is  entitled  to  judgment. 

The  case  will  be  remanded  to  the  Common  Pleas,  with  direc- 
tions to  reverse  the  judgment  of  that  Court,  and  enter  judgment 
for  defendent. 


PART   II. 

CASES  ON  THE  LAW  OF  SURETYSHIP  AND  GUARANTY. 


CHAPTER  I. 

THE  CONTRACT  DEFINED  AND  EXPLAINED. 

Suretyship  and  Guaranty  Defined  and  Distinguished.* 

CAMPBELL  v.  SHERMAN  (Hornet's  Appeal). 

151  Pa.  St.  70.     1892. 

Appeal  from  court  of  common  pleas,  Sullivan  county;  John 
A.  Sittser,  Judge. 

Contest  between  J.  A.  Hornet,  claimant,  and  other  lien  cred- 
itors of  Adam  Sherman,  upon  distribution  of  a  fund  arising 
from  a  sheriff's  sale  of  the  real  estate  of  said  Sherman.  From  a 
judgment  allowing  Hornet's  claim  in  part  only,  he  appeals.  Re- 
versed. 

McCollum,  J.  On  the  first  of  January,  1887,  J.  A.  Hornet, 
the  appellant,  bought  of  Adam  Sherman  two  judgments  against 
A.  R.  Robbins,  on  which  there  was  then  an  unpaid  balance  of 
$592.38,  and  they  were  duly  assigned  to  him.  At  the  same  time 
he  loaned  to  Sherman  $266.62.  To  secure  the  payment  of  the 
judgments  and  the  money  loaned  he  received  the  bond  of  Sher- 
man in  the  sum  of  $859,  on,  which,  by  virtue  of  the  warrant  of 
attorney  contained  therein,  judgment  was  entered  Jan.  3,  1887. 
On  a  distribution  of  the  proceeds  of  a  sale  by  the  sheriff  on  the 
13th  of  September,  1890,  of  the  real  estate  of  Sherman,  the  ap- 
pellant claimed  to  apply  on  his  judgment  the  fund  remaining 
after  paying  costs  and  prior  liens.  The  subsequent  lien  creditors 
of  Sherman  admitted  that  the  appellant  was  entitled  to  receive 
the  sum  loaned,  with  interest  thereon,  but  contended  that  Sher- 
man was  released  from  liability  as  to  the  balance  because  of  the 
appellant's  failure  to  revive  the  Robbins  judgments.     To  this 

*  See  Sec.  868,  Vol.  6,  Cyclopedia  of  Law. 

179 


180  THE    CONTRACT    DEFINED. 

the  appellant  answered  thai  his  omission  to  revive  these  judg- 
ments did  not  release  Sherman,  and  that,  if  il  did,  the  creditors 
could  not  take  advantage  of  it  on  distribution.  The  conclusion 
peached  by  the  learned  auditor  was  thai  he  could  not,  a1  the  in- 
stance of  the  lien  creditors,  set  aside  or  disregard  the  judgmenl 
on  the  showing  before  him,  bu1  thai  Sherman  might,  in  an  ap- 
propriate proceeding,  rely  on  the  appellant's  negligence  as  a  de- 
fense to  it.  The  Learned  president  of  the  common  pleas  thought 
that  this  defense  could  be  successfully  made  before  the  auditor 
by  the  lien  creditors,  and  the  fund  was  accordingly  awarded  to 
them. 

In  reviewing  the  decision  of  the  court  below,  the  first  im- 
portant inquiry  is  whether  the  obligation  of  Sherman  in  respect 
to  the  Robbins  judgments  was  that  of  a  surety  or  of  a  guarantor. 
If  he  was  a  surety,  he  was  not  released  from  liability  by  the 
negligence  of  the  appellant,  and  the  contention  concerning  the 
powers  of  the  auditor  has  nothing  to  rest  upon.  It  is  well  settled 
that  mere  forbearance,  however  prejudicial  to  ;t  surety,  will  not 
discharge  him.  and  that  the  failure  of  a  creditor  to  revive  a 
judgment  does  not  release  the  surety,  unless  there  was  an  express 
agreement  that  it  should  be  kept  revived  for  his  benefit.  Winton 
v.  Little,  94  Pa.  St.  64;  U.  S.  v.  Simpson,  3  Pen.  &  W.  437. 

We  think  the  undertaking  of  Sherman  was  that  of  a  surety. 
His  bond  included  the  money  loaned  and  the  balance  due  on  the 
Robbins  judgments,  and  by  its  express  terms  was  to  remain  in 
force  until  the  whole  sum  was  paid.  The  written  conditions  in 
the  bond  define  the  liability  of  the  obligor,  and  we  cannot  add  to 
them  by  implication  a  condition  which  would  render  them  nuga- 
tory. The  written  condition  applicable  to  this  contention  is  that, 
if  the  judgments  "shall  be  paid  in  full  by  the  said  A.  R.  Robbins, 
his  heirs  and  assigns,  to  the  said  J.  A.  Hornet,  then  this  obliga- 
tion to  be  void,  otherwise  to  be  and  remain  in  full  force  and 
virtue. ' ' 

The  appellant  purchased  the  judgments  on  the  agreement  of 
his  vendor  to  pay  them  if  Robbins  did  not.  It  was  a  contract  of 
suretyship,  and  not  of  technical  guaranty,  on  which  he  parted 
with  his  money.  On  the  failure  of  Robbins  to  pay  the  judg- 
ments at  maturity,  he  was  at  liberty  to  proceed  directly  against 
the  surety.     He  was  not  bound  to  resort  to  legal  proceedings 


CAMPBELL  V.   SHERMAN.  181 

against  Robbins  or  to  show  that  they  would  have  been  unavailing 
in  order  to  sustain  process  upon  the  bond.  He  was  under  no 
legal  duty  to  the  surety  to  revive  the  judgments,  unless  re- 
quested to  do  so,  and,  as  no  such  request  was  made,  negligence 
in  this  particular  cannot  be  imputed  to  him.  The  law  on  this 
subject  is  stated  by  Agnew,  J.,  in  Reigart  v.  White,  52  Pa.  St. 
440,  as  follows: 

"A  contract  of  suretyship  is  a  direct  liability  to  the  creditor 
for  the  act  to  be  performed  by  the  debtor,  and  a  guaranty  is  a 
liability  only  for  his  ability  to  perform  this  act.  In  the  former 
the  surety  assumes  to  perform  the  contract  of  the  principal 
debtor  if  he  should  not,  and  in  the  latter  the  guarantor  under- 
takes that  his  principal  can  perform — that  he  is  able  to  do  so. 
From  the  nature  of  the  former,  the  undertaking  is  immediate 
and  direct  that  the  act  shall  be  done  which  if  not  done  makes  the 
surety  responsible  at  once ;  but  from  the  nature  of  the  latter,  non- 
ability,  in  other  words  insolvency,  must  be  shown." 

In  Kramph's  Ex'x  v.  Hatz's  Ex'rs,  Id.  525,  Woodward,  C.  J., 
discussing  the  same  subject  said:  "The  contract  of  a  guarantor 
is  to  be  carefully  distinguished  from  that  of  a  surety,  for  whilst 
both  are  accessory  contracts,  and  that  of  a  surety  in  some  sense 
conditional,  as  that  of  a  guarantor  is  strictly  so,  yet  mere  delay 
to  sue  the  principal  debtor  does  not  discharge  a  surety.  The 
surety  must  demand  proceedings,  with  notice  that  he  will  not 
continue  bound  unless  they  are  instituted.  Cope  v.  Smith,  8 
Serg.  &  R.  HO! 

By  his  contract  he  undertakes  to  pay  if  the  debtor  do  not; 
the  guarantor  undertakes  to  pay  if  the  debtor  cannot.  The  one  is 
an  insurer  of  the  debt :  the  other,  an  insurer  of  the  solvency  of 
the  debtor.  It  results  as  a  matter  of  course  out  of  the  latter 
contract  that  the  creditor  shall  use  diligence  to  make  the  debtor 
pay,  and,  failing  this,  he  lets  go  the  guarantor."  The  foregoing 
extracts  from  the  opinions  of  eminent  Pennsylvania  jurists  draw 
with  remarkable  clearness  and  precision  the  distinction  between 
a  contract  of  suretyship  and  a  contract  of  guaranty,  and  ac- 
curately define  the  respective  rights  and  obligations  of  a  surety 
and  a  guarantor.  There  has  been  no  departure  by  this  court 
from  the  principles  announced  in  them,  and  they  sustain  the 
contention  of  the  appellant  that  his  omission  to  revive  the  Rob- 


182  THE    CONTRACT   DEFINED. 

bins  judgment  did  not  affect  Sherman's  liability  on  his  bond. 
It  follows  that  it  was  error  to  award  the  fund  to  the  subsequent 
lien  creditors. 

D<  en  i  n  versed,  and  record  remitted  to  the  court  below,  with 
direction  to  distribute  the  fund  in  accordance  with  this  opinion; 
the  costs  of  this  appeal  to  be  paid  by  the  appellees.* 


SAINT  ET  AL.  v.  WHEELER  &  WILSON  MFG.  CO. 

95  Ala.  362;  36  Am.  St.  R.  210.     1891. 

Action  by  Wheeler  &  Wilson  Mfg.  Co.  against  R.  F.  Saint, 
A.  J.  Crosthwait,  C.  M.  Wright,  J.  F.  Hall  and  J.  R,  Spragins, 
parties  to  a  contract  under  seal,  in  the  words  and  figures  follow- 
ing: 

"For  value  received  and  in  consideration  of  the  within  con- 
tract, R.  F.  Saint  (and  the  other  defendants,  giving  their  names 
and  residences  respectively),  hereby  guarantee  to  the  Wheeler 
&  Wilson  Mfg.  Co.,  its  successors  or  assigns,  the  full  and  faith- 
ful performance  of  the  foregoing  contract,  including  .11  damages 
which  may  result  to  the  said  company  from  any  failure  on  the 
part  of  the  said  R,  F.  Saint  to  perform  any  of  the  provisions  of 
said  agreement  to  the  amount  of  $1,000 ;  hereby  waiving  all  neces- 
sity on  the  part  of  said  company  of  instituting  legal  proceedings 
against  said  R.  F.  Saint  before  having  recourse  on  us;  hereby 
waiving  the  benefit  of  all  constitutional  or  statutory  homestead 
or  exemption  laws  now  in  force;  further  agreeing  to  pay  plain- 
tiff's attorney's  fees  and  all  costs  should  suit  be  necessary  to 
enforce  the  collection  of  this  bond. 

"Witness  our  hands  and  seals,  etc." 

This  contract  or  bond  was  written  on  the  back  of  the  contract 
therein  referred  to,  by  which  said  company,  as  party  of  the  first 


*  "The  contract  of  a  guarantor  is  collateral  and  secondary.  It 
differs  in  that  respect  generally  from  the  contract  of  a  surety  which 
is  direct;  and  in  general  the  guarantor  contracts  to  pay  if,  by  the  use 
of  due  diligence,  the  debt  cannot  be  made  out  of  the  principal  debtor, 
while  the  surety  undertakes  directly  for  the  payment  and  so  is 
responsible  at  once  if  the  principal  debtor  makes  default."  Maxwell, 
J.,  in  Kearnes  v.  Montgomery,  4  W.  Va.  29.    1870. 


SAINT  v.   WHEELER  &  WILSON   MFG.  CO.  183 

part,  employed  said  Saint,  party  of  the  second  part,  as  its  col- 
lector, which  contract  contained  these  provisions,  among  others : 

1.  The  party  of  the  first  part  (Wheeler  &  Wilson  Mfg.  Co.) 
agreed  to  employ  the  party  of  the  second  part  as  its  collector. 

2.  The  party  of  the  second  part  is  to  engage  in  no  other  busi- 
ness but  to  devote  his  time  exclusively  to  collecting  claims  given 
him  from  time  to  time  by  the  party  of  the  first  part. 

3.  The  party  of  the  second  part  agrees  to  remit  to  the  party 
of  the  first  part  on  Saturday  of  each  week  the  full  amount  of  all 
collections  made  by  him. 

4.  All  notes,  leases  and  cash  received  by  the  party  of  the 
second  part  on  account  of  the  party  of  the  first  part  shall  be  held 
and  rendered  strictly  as  the  property  of  the  said  party  of  the 
first  part  subject  to  their  order  and  under  their  control. 

6.  The  party  of  the  second  part  is  to  receive  as  full  com- 
pensation for  his  services  under  this  agreement,  a  salary  of  $50 
per  month  and  necessary  traveling  expenses     *     *     *. 

All  the  defendants  filed  the  plea  of  the  general  issue.  The 
other  sureties  on  the  bond  filed  separate  pleas,  twenty-two  in 
number,   including   those   to  which   demurrers  were  sustained. 

A.  J.  Crosthwait  separately  pleaded  that,  before  Saint  had 
entered  on  the  discharge  of  his  duties  as  collector,  he  notified 
plaintiff  to  take  his  name  off  the  bond — that  he  would  not 
become  a  surety  on  the  bond ;  that  the  plaintiff  made  no  objec- 
tion and  he  was  thereby  released  from  any  obligation  on  the 
bond.  The  other  sureties  on  the  bond  filed  a  separate  plea 
that  they  signed  the  bond  with  the  understanding  that  Crosth- 
wait was  also  jointly  liable  with  them  on  the  bond  and  that  a 
release  of  Crosthwait  on  the  bond  without  their  consent  released 
them.     *     *     * 

The  evidence  introduced  on  the  trial  of  the  case  established 
the  following  facts:  That  the  above  contract  was  executed  by 
the  plaintiff  and  R.  F.  Saint  and  the  bond  was  executed  by  the 
defendants,  Wright,  Crosthwait,  Hall  and  Spragins,  as  sureties 
on  the  bond.  That  Saint  received  from  the  plaintiff  a  large 
list  of  notes  and  accounts  for  collection;  that  he  collected  a 
considerable  amount  of  money  for  it,  paying  over  a  portion  of  it 
and  retaining  or  embezzling  the  balance  of  it.  After  the  bond 
was  executed,  Saint  carried  it  or  sent  it  to  Nashville  to  the 


184  THE    CONTRACT    DEFINED. 

plaintiff;    that    when    Saint    went    to   Nashville   to   begin    work 
under  the  contract  and  before  he  had  reached  thai  place  or  had 
received   any  notes  or  accounts   from  the  plaintiff,   Crosthwait 
notified   plaintiff  to  take  his  name  off  the  bond,  which   was  a 
revocation  of  his  guaranty,  and,   plaintiff  not  having  refused, 
he    regarded    himself    released.      Plaintiff    did    not    decline   to 
release  him  but  simply  asked  his  reasons;  and  after  that  plain- 
tiff  gave   Saint   the   notes   and   accounts  to  collect.      That    when 
Saint  went  to  Nashville  to  lake  charge  of  the  work  assigned  to 
him  under  the  contract,  the  original  contract  was  changed  and 
Saint    was   permitted    to   retain    from   his   weekly   collections   all 
his  expenses  and  a  salary  of  $50  per  month  instead  of  remitting 
to  plaintiff  the  full  amount  of  his  collections.    That  in  February, 
1SSS,  the  plaintiff,  through  W.   W.  Walks,  made  another  change 
in  the  contract,   whereby  Saint  was  to  get  only  $9  per  week 
instead  of  $50  per  month  for  his  services  as  collector,  and  that 
Saint  worked  under  this  last  contract  until  he  quit,  but,  on  a 
settlement  he  made  with  the  company  through  AValls,  he  was 
allowed  $50  per  month.    That  Saint  was  required  to  sell  and  dis- 
count notes  and  accounts  which  had  been  put  in  his  hands  for 
collection  under  the  contract.    That  he  was  required  to  take  up 
the  sewing  machines  and  sell  them  again  for  such  prices  as  he 
could  gel   for  them,  and  that  he  did  take  up  some  machines  for 
the  plaintiff,  but  did  not  know  how  many,  and  sold  some  of  them 
under  instructions  from  the  plaintiff.     That  Wright,  Hall  and 
Spragins  knew  nothing  about  Crosthwait  revoking  his  guaranty 
on  the  bond;    that  they  signed  it  with  the  understanding  and 
agreement  that  Crosthwait  was  jointly  liable  with  them.     It  was 
also  proved   that   in  February,  1888,  the  plaintiff,  through  its 
agent,  had  notice  of  Saint's  defalcation  and  that  after  such  notice 
said  company  continued  Saint  in  its  employment.     The  defend- 
ants  knew   nothing   about  the   changes  made   in   this   contract 
between  Saint  and  the  plaintiff  after  the  bond  was  signed.    They 
never  consented  to  any  of  the  changes.   The  plaint  iff  never  notified 
either  of  them  of  Saint's  dishonest  act  in   appropriating  the 
plaintiff's  money.     Defendants  then  offered  to  prove  by  each  of 
the  defendants  that  they  had  not  consented  to  a  change  in  the 
contract  and  had  no  knowledge  of  such  change. 

Defendants  introduced  as  evidence  a  number  of  letters  written 


SAINT    v.    WHEELER   &  WILSON   MFG.   CO.  185 

by  plaintiff  to  the  defendant,  R.  F.  Saint,  in  which  they  author- 
ized him  to  discount  notes  and  use  his  discretion.  All  the  letters 
show  that  Saint  was  required  to  do  other  work  than  that 
required  under  the  written  contract;  all  of  which  increased  the 
risk  which  the  sureties  had  incurred. 

In  addition  to  the  other  charges  requested  by  the  defendant 
in  writing-  were  the  following: 

5.  "If  the  jury  believe  from  the  evidence  that  in  February, 
1888,  Saint  had  only  used  $50  or  $60  of  the  plaintiff's  money, 
and  that  Saint  notified  the  plaintiff  that  he  was  short  that 
amount,  then  it  was  the  duty  of  the  plaintiff  to  notify  the  sure- 
ties, Wright,  Crosthwait,  Hall  and  Spragins,  and,  if  the  plaintiff 
failed  to  notify  them  of  such  fact,  they  cannot  recover  against 
these  sureties  for  any  defalcation  of  Saint  after  that  time." 

7.  "If  the  jury  believe  from  the  evidence  that  A.  J.  Crosth- 
wait wTas  released  from  the  bond  as  guaranty  after  the  other 
sureties,  Wright,  Crosthwait,  Hall  and  Spragins  had  signed  it, 
then  I  charge  you  that  such  release  was  a  material  change  in  the 
contract.  And  if  you  further  believe  from  the  evidence  that 
such  change  was  made  without  the  knowledge  and  consent  of 
Wright,  Hall,  and  Spragins,  and  Crosthwait,  then  the  plaintiff 
cannot  recover  against  them." 

9.  "If  the  jury  believe  from  the  evidence  that  in  February, 
1888,  the  plaintiff  had  notice  that  defendant,  Saint,  had  collected 
money  for  it  which  he  had  converted  to  his  own  use,  then  it  was 
the  duty  of  the  plaintiff  to  notify  Wright,  Hall,  Crosthwait,  and 
Spragins,  his  securities,  and  if  it  failed  to  notify  them,  the  plain- 
tiff cannot  recover  against  said  sureties  for  the  money  collected 
and  appropriated  to  his  own  use  after  the  time. ' ' 

The  defendants  separately  excepted  to  the  court's  refusal  to 
give  the  several  charges  requested  by  them     *     *     *. 

There  were  verdict  and  judgment  for  the  plaintiff.  Defend- 
ants appeal. 

McClellan,  J.  The  contract  sued  is  not  a  guaranty,  but 
one  of  suretyship.  Crosthwait  and  the  other  defendants,  who 
undertake  that  Saint  shall  faithfully  perform  his  contract  with 
the  company,  are  sureties  of  Saint  and  not  guarantors.  The 
distinction  between  the  two  classes  of  undertakings  is  often 
shadowy,  and  often  not  observed  by  judges  and  text- writers ;  but 
that  there  is  a  substantive  distinction,  involving  not  infrequently 
important  consequences,  is,  of  course,  not  to  be  doubted.     It 


186  THE    CONTRACT    DEFINED. 

seems  to  lie  in  this:  that  when  the  sponsors  for  another  assume  a 
primary  and  direct  liability,  whether  conditional  or  not,  in  the 
sense   of  being  immediate  or   postponed  till   some  subsequent 
occurrence,  to  the  creditor,  they  are  sureties;    but  when  this 
responsibility  is  secondary,  and  collateral  to  that  of  the  principal, 
they  are  guarantors.     Or,  as  otherwise  stated,  if  they  undertake 
to  pay  money  or  to  do  any  other  act  in  the  event  their  principal 
fails  therein,  they  are  sureties;    but,  if  they  assume  the  per- 
formance only  in  the  event  the  principal  is  unable  to  perform, 
they  are  guarantors.     Or,  yet  another  and  more  concise  state- 
ment, a  surety  is  one  who  undertakes  to  pay  if  the  debtor  do  not ; 
a  guarantor,  if  the  debtor  cannot.    The  first  is  sponsor  absolutely 
and  directly  for  the  principal's  acts;    the  latter,  only  for  the 
principal's  ability  to  do  the  act.    "The  one  is  the  insurer  of  the 
debt;  the  other,  an  insurer  of  the  insolvency  of  the  debtor." 
This  is  the  essential  distinction.    There  is  another,  going  as  well 
to  its  form.     The  contract  of  suretyship  is  the  joint  and  several 
contract  of  the  principal  and  surety.     "The  contract  of   the 
guarantor  is  his  own  separate  undertaking,  in  which  the  princi- 
pal does  not  join."     Indeed,  it  has  been  held,  pretermitting  all 
other  considerations,  that  no  contract  joined  in  by  the  debtor  and 
another  can  be  one  of  guaranty  on  the  part  of  the  latter.     (Mc- 
Millan v.  Bank,  32  Ind.  11,  10  Amer.  Law  Reg.,  N.  S.,  435,  and 
notes.)      Though  we  apprehend  that  a  case  might  be  put,  in- 
volving only   secondary  liability   on   the  sponsors,   though  the 
undertaking  be  signed  also  by  the  principal.    However  that  may 
be   it  is  certain  that  in  most  cases  the  joint  execution  of  a  con- 
tract by  the  principal  and  another  operates  to  exclude  the  idea 
of  a  guaranty,  and  that  in  all  cases  such  fact  is  an  index  point- 
ing to  a  suretyship.     See  Brandt,  Sur.  Sections  1,  2;  9  Amer. 
&  Eng.   Enc.  Law,  p.   68;    Marberger  v.  Pott,   16   Pa.  St.  9; 
Allen  v.  Hubert,  49  Pa.  St.  259 ;  Reigart  v.  White,  52  Pa.  St. 
438;  Kramph's  Ex'r  v.  Hatz's  Ex'r,  Id.  525;  Birdsall  v.  Ileacock, 
18  Amer.  Law  Reg.  (N.  S.)  751,  and  notes;  Hartman  v.  Bank, 
103  Pa.  St.  581;  Courtis  v.  Dennis,  7  Mete.  (Mass.)  510;  Kearnes 
v.  Montgomery,  4  W.  Va.  29 ;  Walker  v.  Forbes,  25  Ala.  139. 

Applying  these  principles  to  the  bond  sued  on,  the  con- 
clusion must  be  that  it  is  not  a  guaranty,  but  a  contract  of 
suretyship,  on  the  part  of  Crosthwait,  Wright,  Hall  and  Sprag- 


SAINT   v.   WHEELER  &  WILSON   MFG.  CO.  187 

ins.  It  is  not  their  separate  undertaking,  but  the  principal  also 
executes  it.  While  they  employ  the  word  "guaranty,"  they 
directly  obligate  themselves,  along  with  Saint,  to  pay — absolutely 
and  wholly,  irrespective  of  Saint's  solvency  or  insolvency — all 
damages  which  may  result  to  the  obligee  from  his  default.  Not 
only  so,  but  they  expressly  stipulate  that  the  company  need  not 
exhaust  its  remedies  against  Saint  before  proceeding  against 
them.  It  is,  in  other  words,  and  in  short,  a  primary  undertaking 
on  their  part — not  secondary  and  collateral — to  pay  to  the  com- 
pany in  the  event  of  Saint's  failure,  and  not  an  undertaking  to 
pay  only  in  the  event  of  Saint's  default  and  inability  to  pay. 
They  are  sureties  of  Saint,  and  not  his  guarantors;  and  their 
rights  depend  upon  the  law  applicable  to  the  former  relation, 
and  not  upon  the  law  controlling  the  latter.  One  of  the  impor- 
tant differences  in  the  operation,  effect,  and  discharge  of  the  two 
contracts  finds  illustration  in  this  case.  The  undertaking  of 
guaranty,  in  a  ease  like  this,  is  primarily  an  offer,  and  does  not 
become  a  binding  obligation  until  it  is  accepted  and  notice  of 
acceptance  has  been  given  to  the  guarantor.  Till  this  has  been 
done,  it  cannot  be  said  that  there  has  been  that  meeting  of  the 
minds  of  the  parties  which  is  essential  to  all  contracts.  Machine 
Co.  v.  Richards,  115  U.  S.  524,  6  Sup.  Ct.  Rep.  173 ;  Walker  v. 
Forbes,  25  Ala.  139.  Being  thus  a  mere  offer  it  may  be  recalled, 
as,  of  course,  at  any  time  before  notice  of  acceptance.  Indeed, 
there  are  authorities  which  hold  that  even  after  acceptance,  and 
notice  thereof,  the  guarantor  may  revoke  it  by  notice  that  he 
will  no  longer  be  bound,  unless  he  has  received  a  continuing  or 
independent  consideration  which  he  does  not  renounce,  or  unless 
the  guarantee  has  acted  upon  it  in  such  way  as  that  revocation 
would  be  inequitable  and  to  his  detriment;  and  in  cases  of  con- 
tinuing guaranty,  the  effect  of  such  revocation  is  to  confine  the 
guarantor's  liability  to  past  transactions.  2  Pars.  Cont.  30; 
Allan  v.  Kenning,  9  Bing.  618 ;  Offord  v.  Davies,  12  C.  B.  (N.  S.) 
748;  Tischler  v.  Hofheimer,  (Va.)  4  S.  E.  Rep.  370.  All  this  is 
otherwise  with  respect  to  the  contract  of  a  surety.  He  is 
bound  originally,  in  all  respects,  upon  the  same  footing  as  the 
principal.  His  is  not  an  offer  depending  for  efficacy  upon  ac- 
ceptance, but  an  absolute  contract,  depending  for  efficacy  upon 
complete  execution;  and  its  execution  is  completed  by  delivery. 


188  THE    CONTRACT    DEFINED. 

From  that  moment  his  liability  continues  until  discharged  in 
accordance  with  stipulations  of  the  instrument,  or  by  some 
unauthorized  act  or  omission  of  the  obligee  violative  of  his  rights 
under  the  instrument,  or  by  a  valid  release  Nothing  that  he  can 
do  outside  of  the  biter  of  the  bond  can  free  him  from  the  duties 
and  liabilities  it  imposes.  lie  cannot  assert  the  right  to  revoke 
unless  the  right  is  therein  nominated.  As  was  said  by  the  Eng- 
lish court,  if  he  desired  to  have  the  right  to  terminate  his  surety- 
ship on  notice,  he  should  have  so  specified  in  his  contract.  Cal- 
vert v.  Gordon,  3  .Man.  &  R.,  124;  Brandt,  Sur.  Sec.  113,  114. 

The  evidence  here  as  to  the  release  of  Crosthwait  tends  to  show 
no  more  than  this:  That  after  the  bond  had  been  delivered  to 
plaintiff,  and  after  its  officers  had  advised  Saint  that  they  were 
ready  for  him  to  enter  on  the  discharge  of  his  duties  under  the 
contract  secured  by  the  bond,  he  (Crosthwait)  requested  plaintiff 
to  take  his  name  off  the  paper.  No  assent  to  this  request  is 
shown,  but  only  an  inquiry  on  the  part  of  plaintiff  as  to  Crosth- 
waite's  reasons  for  desiring  to  be  released.  It  would  seem  that 
the  court  itself  should  have  decided  that  these  facts  did  not 
release  Crosthwaite,  but  the  question  appears  to  have  been  sub- 
mitted to  the  jury.  If  this  submission,  or  any  of  the  instruc- 
tions accompanying  it,  was  erroneous,  no  injury  resulted  to 
defendants,  since  the  jury  determined  the  point  against  the 
alleged  release,  as  the  court  should  have  done,  assuming  it  to 
have  been  a  question  of  law.  On  the  other  hand,  if  it  were  a 
question  for  the  jury,  it  is  to  be  presumed  they  were  properly 
instructed  as  to  the  rules  of  law  which  should  guide  them  to  its 
solution,  as  no  exceptions  were  reserved  in  that  regard.  The 
exceptions  which  were  reserved  on  this  part  of  the  case  are  to 
charges  given,  and  to  the  refusal  to  give  charges  asked  by  de- 
fendants declaratory  of  the  effect  which  the  discharge  of  Crosth- 
waite, if  the  jury  found  he  had  been  discharged,  "would  have 
upon  the  liability  of  his  co-sureties.  As  the  jury  found  expressly 
that  he  had  not  been  discharged,  these  exceptions  present  mere 
abstractions  not  necessary  to  be  decided.  We  have  no  doubt, 
however,  but  that  the  law  in  this  respect  was  correctly  declared 
by  the  court  to  be  that  the  release  of  Crosthwaite  operated  to 
release  the  other  sureties  only  to  the  extent  of  his  aliquot  share 
of  the  liability. 


SAINT   v.   WHEELER  &  WILSON   MFG.   CO.  189 

Brandt,  Sur.  Sec.  383;  Burge,  Sur.  386;  Klingensmith  v. 
Klingensmith,  31  Pa.  St.  460;  Ex  Parte  Gifford,  6  Ves.  805; 
Shock  v.  Miller,  10  Pa.  St.  401 ;  Currier  v.  Baker,  51  N.  II.  613 ; 
Governor  v.  Jemison,  47  Ala,  390. 

The  sureties  of  Saint  insisted  on  the  trial  below  that  they  were 
discharged  from  all  liability  on  the  bond  by  reason  of  certain 
alleged  changes  made  in  the  original  contract  between  their  prin- 
cipal and  the  company,  by  the  parties  thereto,  after  they  became 
sureties  for  its  faithful  performance,  and  without  their  knowl- 
edge, consent,  or  ratification.  It  is  not  pretended  that  the  paper 
writing  evidencing  this  contract  was  ever  altered  in  any  respect, 
but  that  its  terms  were  changed  by  subsequent  parol  agreements, 
in  the  following  respects,  among  others  to  be  presently  consid- 
ered :  First,  that  under  this  contract,  which  constituted  Saint  a 
collector  only  for  the  company,  he  was  instructed  and  required 
to  take  up  and  resell  sewing  machines  when  he  found  the  notes 
for  the  purchase  money  of  the  same,  and  which  were  in  his  hands 
for  collection,  could  not  be  collected ;  and,  second,  that  he  was 
authorized  to  discount  or  sell  the  notes  placed  in  his  hands  for 
collection,  when  the  same  could  not  be  otherwise  realized  upon. 
Nothing  is  claimed  in  this  action  on  account  of  Saint's  miscon- 
duct in  respect  of  any  property  thus  taken  up  or  resold,  or  of 
any  note  discounted  by  him,  or  with  respect  to  the  proceeds  of 
any  such  sale  or  discount.  If  these  duties  were  such  as  usually 
devolved  upon  a  collector  for  a  sewing  machine  company, — as 
to  which  there  is  no  evidence  in  this  record,  and  no  necessity 
for  any,  under  the  present  complaint,1 — it  may  be  that  Saint's 
sureties  would  be  responsible  for  their  faithful  performance  on 
his  part  to  the  same  extent  as  for  money  collected  on  notes  in 
his  hands.    Bank  v.  Ziegler,  49  Mich.  157,  13  N.  W.  496. 

However  that  may  be,  the  fact  that  they  were  imposed  upon 
him,  assuming  they  were  not  covered  by  his  contract,  and  hence 
were  in  addition  to  those  assured  by  the  other  defendants,  can- 
not relieve  his  sureties  from  liability  with  respect  to  those  which 
were  imposed  by  the  contract,  unless  the  imposition  of  these  new 
duties  and  their  performance  by  Saint  rendered  impossible,  or 
materially  hindered  or  impeded,  the  proper  and  faithful  per- 
formance of  the  service  originally  undertaken.  There  is  no  evi- 
dence here  that  these  new  and  additional  duties  interfered  with 


190  THE    CONTRACT    DEFINED. 

the  collection  of  notes  placed  to  his  hands  for  that  purpose,  nor 
i>  any  claim  made  against  his  sureties  on  account  of  any  failure 
to  colled  such  notes.    But  the  gravamen  of  the  action  is  that  he 
(1)   did  collect   these  notes,  and  converted  the  proceeds  to  his 
own    use;  or    (2)    that   he    failed   to  deliver   such   notes  to  the 
company  on  the  termination  of  his  employment.    We  are  unable 
to  conceive  how  the  fact  that  he  had  other  properly  and  funds- 
machines  and  the  proceeds  of  discounted  notes — in  his  posses- 
sion, could  have  hindered  or  impeded  him  in  the  aaoounting  for 
funds  collected  or  notes  remaining  in  his  hands,  or  could  in  any 
degree  have  conduced  in  his  conversion  of  such  funds  or  notes. 
To  the  contrary,  it  would  seem,  in  all  reason,  that  the  possession 
of  this  other  property  and  these  other  funds,  out  of  which  he 
might  have  met   the  necessities  which  presumably  induced  his 
malversations,  would  have  lessened  the  chances  of  misappropria- 
tion  of  the   funds  and   property   for  which  his  sureties  were 
responsible,  and  thus  have  lessened,  instead  of  increased,  their 
exposure  to  liability.    We  are  very  clear  to  the  conclusion  that 
the  imposition  of  these  new  duties,  not  covered  by  the  contract, 
did  not  discharge  the  sureties  with  respect  to  those  embraced  in 
the  contract,  and  as  to  which  no  change  in  the  particulars  we 
are  considering  was  attempted. 

City  of  New  York  v.  Kelly,  98  N.  Y.  467;  State  v.  Vilas, 
36  X.  Y.  459;  Ins.   Co.  v.  Potter,  4  Mo.  App.  594;  Com.  v. 
Holmes,  25  Grat.  771 ;  Bank  v.  Traube,  75  Mo.  199 ;  Gaussen  v. 
U.  S.,  97  U.  S.  584 ;  Jones  v.  U.  S.,  18  Wall  662 :  Ryan  v.  Morton, 
65  Tex.  258;  Bank  v.  Gerke  (Md.),  13  Atl.  358,  6  Amer.  St.  R. 
453,  and  note,  458;  Bank  v.  Zeigler,  49  Mich.  157,  13  N.  W.  496. 
The  sureties  further  defended  on  the  ground  that  the  con- 
tract between  Saint  and  the  company  was  changed  without  their 
knowledge  or  assent  by  a  subsequent  parol  agreement  entered 
into  by  their  principal  and  Walls,  representing  the  company, 
whereby  Saint's  compensation  was  to  be  reduced  from  $50  per 
month  to  $9  per  week.     There  was  evidence  of  such  agreement 
but  none  that  it  was  supported  by  a  consideration  or  that  it  was 
approved  by  plaintiff;  and  it  appears  from  other  evidence  that 
all  of  Walls'  contracts  were  subject  to  approval  <>r  rejection  by 
other  officers  of  the  corporation,  and  that  plaintiff  settled  with 


SAINT  v.   WHEELER  &  WILSON   MFG.  CO.  191 

Saint  on  a  basis  as  to  compensation  of  $50  per  month.    Wo  think, 
on  these  facts,  this  defense  is  without  merit. 

Steele  v.  Mills,  68  Iowa,  460,  27  N.  W.  294. 

Equally  untenable,  in  our  opinion,  is  the  defense  which  pro- 
ceeds on  the  ground  that  the  instruction  of  plaintiff  to  Saint  to 
retain  his  salary  and  expenses  out  of  collections  made  by  him 
was  a  material  change  of  that  provision  of  the  contract  which 
required  him  to  remit  to  the  company  on  the  last  day  of  each 
week  the  amount  collected  up  to  that  day.  The  contract  pro- 
vided for  Saint's  compensation  and  expenses,  but  was  silent  as 
to  the  manner  of  payment.  Method  of  payment  thus  adopted 
tended  to  decrease  the  risks  of  the  sureties,  as  affording  less 
occasion  for  conversion  by  Saint  than  had  payments  to  him  been 
made  only  at  the  end  of  each  month.  It  is  well  settled  that  mere 
indulgence  of  the  creditor  to  the  principal,  the  mere  forbearance 
to  take  steps  to  enforce  a  liability  upon  default,  or  even  an  un- 
derstanding between  them  looking  to  payment  of  the  deficit 
presently  due  at  some  time  in  the  future,  which  does  not,  for 
the  want  of  a  consideration  to  support  it,  or  other  infirmity, 
prevent  the  creditor  from  immediately  demanding  payment, 
will  not  discharge  the  surety.  Hence  what  took  place  between 
Walls  and  Saint  in  February,  1888,  in  regard  to  allowing  the 
latter  further  time  to  make  good  the  sum  he  had  theretofore 
converted,  afforded  no  defense  to  the  sureties  with  respect  to  the 
sum  then  due. 

3  Brick  Dig.,  p.  715,  Sec.  36-43 ;  9  Amer.  &  Eng.  Enc,  Law, 
p.  83,  note  4;  Canal,  etc.,  Co.  v.  Van  Vorst,  21  N.  J.  Law,  100. 

The  sureties,  however  on  another  aspect  of  the  transaction 
last  above  referred  to  between  Saint  and  Walls,  predicate  a 
defense  going  to  the  amount  of  their  liability.  They  insist  that 
Saint  was  at  that  time  a  defaulter  by  embezzlement ;  that  Walls 
knew  this  fact,  and,  without  giving  any  notice  of  it  to  them,  he, 
acting  for  the  company,  continued  Saint  in  its  employment, 
and  committed  other  funds  to  him,  which  were  also  converted; 
and  that  this  action  of  Walls  discharged  them  from  all  liability 
for  funds  thus  converted  after  he  knew  of  Saint's  dishonesty. 
The  general  principle  here  relied  on  finds  abundant  support  in 
the  authorities.  In  the  leading  case  of  Phillips  v.  Foxall,  L.  R. 
7,  Q.  B.  666,  the  proposition  is  thus  stated  by  Quain,  J. : 


192  THE    CONTRACT    DEFINED. 

"We  think  thai  in  a  case  of  continuing  guaranty  for  the  hon- 
esty of  a  servant,  if  the  master  discovers  that  the  servant  has 
guilty  of  acts  of  dishonesty  in  the  course  of  the  service  to 
which  tlic  guaranty  relates,  and  if,  instead  of  dismissing  the 
servant,  as  he  may  do  at  once  and  without  notice,  he  chooses  to 
continue  in  his  employ  a  dishonest  servant,  without  the  knowl- 
edge and  consent  of  the  surety,  express  or  implied,  he  cannot 
afterwards  have  recourse  to  the  surety  to  make  good  any  loss 
which  may  arise  from  the  dishonesty  of  the  servant  during  the 
subsequent  service. " 

And  this  proposition  is  rested  upon  considerations  which,  to 
our  minds,  are  eminently  satisfactory.  Premising  thai  had  a  de- 
fault involving  dishonesty,  and  occurring  before  the  surety 
became  bound,  been  known  to  the  creditor,  and  concealed  by  him 
from  the  surety,  the  effect  would  have  been  to  discharge  the 
surety,— a  doctrine  which  appears  to  be  well  established, — the 
court  proceeds  to  declare  the  same  result  from  a  concealment  of 
dishonesty  pending  a  continuing  guaranty,  as  follows:  "One 
of  the  reasons  usually  given  for  the  holding  that  such  a  con- 
cealment (at  the  time  the  surety  enters  into  the  obligation) 
would  discharge  the  surety  is  that  it  is  only  reasonable  to  sup- 
pose thai  such  a  fact,  if  known  to  him,  would  necessarily  have 
influenced  his  judgment  as  to  whether  he  would  enter  into  the 
contract  or  not;  and,  in  the  same  manner,  it  seems  to  us  equally 
reasonable  to  suppose  that  it  never  could  have  entered  into  the 
contemplation  of  the  parties  that  after  the  servant's  dishonesty 
in  the  service  had  been  discovered  the  guaranty  *  *  *' 
should  continue  to  apply  to  his  future  conduct,  when  the  master 
chose,  for  his  own  purpose,  to  continue  the  servant  in  his  employ, 
without  the  knowledge  or  assent  of  the  surety.  If  the  obliga- 
tion of  the  surety  is  continuing,  We  think  the  obligation  of  the 
creditor  is  equally  so,  and  that  the  representation  and  under- 
standing on  which  the  contract  was  originally  founded  con- 
tinue to  apply  to  it  during  its  continuance  and  until  its  termina- 
tion." 

The  citations  supporting  this  conclusion  are  quasi  dicta  of 
Lord  Etedesdale  in  Smith  v.  Bank,  1  Dow.  287,  and  of  Malms, 
V.  C,  in  Burgess  v.  Eve,  L.  R.  13,  Eq.  450 ;  but  the  case  was 
subsequently  followed  in   England  and  the  United  States,  and 


SAINT  v.   WHEELER  &  WILSON   MFG.   CO.  193 

nowhere  abstractly  doubted.  We  follow  these  authorities  and 
adopt  their  conclusions  as  sound  in  principle. 

Sanderson  v.  Aston,  L.  R.  8  Exch.  73 ;  Brandt,  Sur.  Sec.  368 ; 
Koberts  v.  Donovan,  70  Cal.  108,  11  Pac.  R.  599 ;  Railroad  Co. 
v.  Gow,  59  Ga.  685;  Telegraph  Co.  v.  Barnes,  64  N.  Y.  385; 
Newark  v.  Stout,  52  N.  J.  Law,  35,  18  Atl.  943. 

Indeed,  the  foregoing  doctrine  is  not  controverted  in  this  case, 
but  it  is  contended  that  it  has  no  application  as  between  a 
corporation,  being  the  creditor,  and  the  surety  of  one  of  its 
officers  or  employes;  and  there  are  not  a  few  adjudged  cases 
which  support  this  view.  The  argument  upon  which  this  con- 
clusion is  reached  is  that  "corporations  can  act  only  by  officers 
and  agents.  They  do  not  guaranty  to  the  sureties  of  one  officer 
the  fidelity  of  the  others.  The  fact  that  there  were  other  un- 
faithful officers  and  agents  of  the  corporation,  who  knew  and 
connived  at  his  (the  principal's)  infidelity,  ought  not  in  reason, 
and  does  not  in  law  or  equity,  relieve  the  sureties  from  their 
responsibility  for  him.  They  undertake  that  he  shall  be  honest, 
though  all  around  him  be  rogues.  Were  the  rule  different,  by  a 
conspiracy  between  the  officers  of  a  bank  or  other  moneyed  in- 
stitution all  their  sureties  might  be  discharged.  It  is  impos- 
sible that  a  doctrine  leading  to  such  consequences  can  be  sound. ' ' 

Railway  Co.  v.  Shaeffer,  59  Pa.  St.  356;  Taylor  v.  Bank,  2 
J.  J.  Marsh,  565 ;  McShaney  v.  Bank,  (Md.)  20  Atl.  776 ;  Brandt, 
Sur.  Sec.  369. 

It  is  to  be  noted  that  these  cases — and  there  may  be  others 
which  follow  them — hold,  not  only  that,  where  there  is  a  con- 
spiracy between  the  officers  of  a  corporation  to  embezzle  its 
funds,  the  dereliction  of  neither  officer  will  discharge  the  sureties 
of  the  other,  but  also  where  there  is  a  negligent  failure  on  the 
part  of  one  such  officer  to  give  notice  to  the  sureties  of  another 
of  his  dishonesty,  and  a  continuance  of  the  dishonest  servant  in 
the  corporate  service  without  the  assent  of  his  sureties,  given 
with  a  knowledge  of  the  default,  the  sureties  are  not  discharged 
from  liability  for  subsequent  deficits,  though  confessedly  they 
would  be  were  the  creditor  an  individual  or  copartnership.  It 
may  be  that  the  first  position  stated  is  sound.  It  would  seem  to 
be  immaterial  whether  an  original  default  results  from  the 
dishonesty  of  the  principal  alone,  or  conjointly  from  his  and 


194  THE    CONTRACT    DEFINED. 

the  dereliction  of  another  corporate  employe.  The  sureties  are 
bound  to  answer  for  the  results  of  any  form  of  original  dishon- 
esty. That  is  what  they  insure  against.  It  may  be,  too, — 
doubtless  would  be, — that  qo  concealment  by  a  conspirator  of  the 
fad  of  the  principal's  original  default,  no  continuance  in  the 
service  by  an  officer  of  the  corporation  in  pari  delicto  with  the 
principal,  would  suffice  to  discharge  the  surety,  since  all  of  this 
in  malversation  participated  in  by  the  principal,  and  violative  of 
the  contracl  which  the  sureties  have  undertaken  to  see  faith- 
fully performed.  Moreover,  the  a.ets  and  omissions  of  one  agent 
of  a  corporation,  in  conspiracy  with  another  to  filch  their  com- 
mon master,  in  furtherance  of  their  nefarious  purposes,  are,  in 
the  nature  of  things,  without  authorization,  by  implication  or 
otherwise,  and  can  in  no  just  sense  be  said  to  be  acts  or  omis- 
sions of  the  corporation.  Upon  this  idea,  it  may  be  that  where 
one  officer,  though  not  originally  participating  in  the  default  of 
another,  conceals  that  default  from  the  sureties  of  his  fellow- 
officer  and  from  the  company  for  sinister  purposes  of  his  own, 
and  not  as  representing  his  employer  or  in  its  interest,  and  con- 
tinues  the  defaulting  officer  in  the  service,  the  sureties  would 
not  be  discharged  as  to  subsequent  deficits.  This  far  we  may  go 
with  the  learned  courts  in  which  the  cases  we  have  cited  were 
decided.  But  even  our  conservatism  in  following  adjudications 
of  courts  of  acknowledged  ability  and  learning  can  in  no  degree 
constrain  us  to  adopt  the  second  proposition  stated  above.  We 
cannot  subscribe  to  the  doctrine  that  there  is  the  radical  differ- 
ence insisted  on,  or  any  material  difference  in  fact,  between  the 
efficacy  of  acts  and  omissions  of  an  agent  of  a  creditor  corpora- 
tion, having  authority  in  the  premises,  on  the  one  hand,  and  the 
acts  and  omissions  of  the  agent  of  an  individual  creditor,  or  of 
the  individual  himself,  on  the  other,  in  respect  of  condoning  the 
defalcation  of  an  employe,  omitting  notice  to  the  employe's  sure- 
ties, and  continuing  him  in  the  service,  to  operate  a  release  of 
the  sureties  as  to  subsequent  deficits  of  the  dishonest  employe. 
No  doctrine  of  the  law  is  more  familiar  than  that  notice  to  an 
agent,  within  the  scope  of  his  agency,  is  notice  to  the  principal ; 
and  the  doctrine  has  in  no  connection  been  applied  more  fre- 
quently and  uniformly  than  to  corporations  and  their  agents. 
Indeed,  there  is  an  absolute  necessity  in  all  cases  for  its  applica- 


SAINT  v.   WHEELER  &  WILSON   MFG.  CO.  195 

tion  to  corporations,  since  they  act  and  can  be  dealt  with  only 
through  agents.  Notice  to  one  agent  of  a  corporation  with 
respect  to  a  matter  covered  by  his  agency  must  be  as  efficacious 
as  to  its  directors  or  to  its  president,  since  these  also  are  only 
agents,  with  larger  powers  and  duties,  it  is  true,  but  not  more 
fully  charged  with  respect  to  the  particular  thing  than  he 
whose  authority  is  confined  to  that  one  thing.  In  the  case  at 
bar,  Walls  had  authority  to  make  the  contract  with  Saint,  sub- 
ject to  the  approval  of  another  agent  of  the  corporation.  He 
did  in  fact  make  it.  This  contract  contained  a  provision  for 
its  termination  by  either  party  at  pleasure.  The  evidence  was 
that  Walls  had  full  supervision  over  Saint,  and  over  all  matters 
embraced  in  the  contract  made  by  Saint.  It  was  at  least  a  fair 
inference  to  be  drawn  by  the  jury  that  he  could  terminate  the 
employment,  either  under  the  stipulation  in  the  instrument;  or 
for  a  violation  of  it  by  Saint,  subject  to  the  approval  of  the  other 
officer  or  agent  referred  to.  There  is  no  ground  to  doubt  but 
that  to  have  given  the  sureties  notice  of  Saint's  default  would 
have  been  in  the  line  of  his  duty  and  authority.  Equally  clear 
it  must  be  that  their  assent  to  him  to  a  continuance  of  Saint's 
employment  would  have  bound  them  for  the  subsequent  defalca- 
tion; and  on  the  other  hand  it  must  be  that  their  dissent  from 
such  continuance,  communicated  to  him,  would  have  had  the 
same  effect  as  had  it  been  given  to  any  other  officer  of  the  creditor 
company.  He  had  notice  of  the  default.  He  received  it  as  rep- 
resenting the  company.  In  that  capacity,  he  condoned  it,  made 
arrangements  with  Saint  to  make  it  good,  continued  the  employ- 
ment, and  thereby  continued  Saint's  opportunities  to  embezzle 
the  company's  funds,  on  the  supposed  security  for  its  reim- 
bursement afforded  by  the  obligation  of  the  sureties,  who  had 
contracted  on  the  assumption  of  Saint's  honesty,  and  were  en- 
titled to  know  of  his  dishonesty,  when  it  should  develop,  as  a 
condition  to  their  subsequent  liability.  There  is  no  intimation 
of  connivance  or  conspiracy  on  the  part  of  Walls  with  Saint  to 
defraud  either  the  creditor  or  the  sureties.  What  he  did  was 
doubtless  done  in  good  faith,  and  for  the  interest,  as  he  sup- 
posed, of  his  employer.  It  was  in  the  Line  of  his  employment.  If 
his  further  duty  was  to  report  his  action  to  another  officer  of 
the  company,   the   presumption   is  that  he   made  such  report. 


196  THE   CONTRACT   DEFINED. 

There  is  nothing  In  the  record  to  rebul  such  presumption.  We 
cannol  hesitate  to  affirm,  on  this  state  of  the  case,  that  what  he 
did  which  ought  no1  to  have  been  done,  and  what  he  failed  to  do 
which  oughl  to  have  been  done,  were  the  acts  and  omissions  of 
the  corporation,  involving  the  same  consequences,  in  all  respects 
as  if  the  corporate  entity  had  been  capable  of  direct  persona] 
act  inn,  so  to  speak,  and  had  acted  as  he  did,  or  as  it'  he  himself, 
and  qo1  the  Wheeler  &  Wilson  Mfg.  Co.,  had  been  the  creditor. 
We  suppose  it  would  not  be  contended  in  any  quarter,  that  if 
these  sureties  had  in  terms  stipulated  that,  in  case  of  Saint's 
default,  notice  to  them,  and  assent  on  their  part,  should  be  a 
condition  precedent  to  their  liability  for  further  defaults,  they 
could  be  held,  without  such  notice  and  assent,  and  yet,  under  the 
doctrine  announced  in  the  cases  cited,  such  a  stipulation  would 
be  entirely  nugatory,  and  the  failure  of  every  agent  and  officer, 
all  with  knowledge  of  the  stipulation  and  of  the  default,  to  notify 
the  sureties  thereof,  would  avail  them  nothing.  Yet  it  would 
manifestly  be  no  more  the  duty  of  the  corporation  to  give  a 
notice  so  stipulated  for  than  to  give  a  notice  made  a  part  of  the 
coul  ract  by  the  law  of  the  land.  And  such  doctrine,  carried  to 
its  legitimate  results,  would  defeat  all  corporate  liability  grow- 
ing out  of  the  contracts,  acts,  and  omissions  of  agents  clothed 
with  power  and  authority  in  the  premises.  That  it  is  unsound 
is  demonstrated,  not  only  in  logic,  but  upon  analogous  authority. 
As  we  have  seen,  the  English  court,  in  the  leading  case  of 
Phillips  v.  Foxall.  supra, — which  has  never  been  called  in  ques- 
tion there  or  in  this  country,  either  as  to  the  result  or  the  rea- 
soning upon  which  it  was  reached, — supported  the  principle 
declared  upon  the  same  considerations  which  underlie  the  doc- 
trine that  if  an  employer  have  knowledge  of  the  previous  dis- 
honesty of  a  servant,  and  accept  a  guaranty  for  his  future 
honesty  without  disclosing  such  knowledge  to  the  surety,  this  is 
a  fraud  upon  the  latter,  and  he  is  not  bound.  Now,  suppose  an 
officer  of  a  corporation,  charged  with  the  duty  of  finding  surety 
for  another  officer,  knowing  of  such  previous  dishonesty  on  the 
part  of  such  officer,  takes  bond  for  his  faithful  and  honest  per- 
formance of  the  services  contracted  for,  without  giving  the 
surety  notice  of  the  prior  dereliction.  Would  not  that  omission 
of  duty  on  his  part  stand  upon  the  same  plane  before  the  law, 


SAINT  v.   WHEELER  &  WILSON   MFG.   CO.  197 

and  involve  precisely  the  same  consequences,  as  if  the  default 
had  occurred  after  the  surety  has  bound  himself,  and  the  officer 
had  then  failed  to  give  him  notice  of  it?  If  the  corporation  is 
not  prejudiced  by  the  omission  in  one  instance,  can  it  be  in  the 
other?  If  the  corporation  is  responsible  for  the  dereliction  of 
its  agent  with  respect  to  notice  of  a  previous  default,  would  it 
not  also  be  responsible  for  its  agent 's  failure  to  give  notice  of  the 
subsequent  default?  There  can,  in  our  opinion,  be  but  one 
answer  to  these  questions.  There  can  be  no  possible  difference  in 
the  duty  of  the  agent  and  the  corporation's  liability  for  its  non- 
performance in  the  two  cases ;  and  the  law  is  well-settled  that  the 
failure  of  the  agent  of  a  corporation  to  give  notice  of  such  pre- 
vious dishonesty  avoids  the  obligation  of  the  sureties  for  future 
misconduct.  Singularly  enough,  too,  some  of  the  cases  holding 
this  doctrine  distinctly  and  broadly  were  decided  by  courts — 
those  of  Pennsylvania  and  Kentucky — which  hold  the  contrary 
view  as  to  notice  of  after-occurring  embezzlement. 

Brandt,  Sur.  Sec.  365-368;  Wayne  v.  Bank,  52  Pa.  St.  344; 
Graves  v.  Bank,  10  Bush,  23 ;  Bank  v.  Cooper,  36  Me.  179,  39 
Me.  542. 

Our  conclusion  on  this  point  is  further  supported  by  the 
cases  of  Railroad  Co.  v.  Gow,  and  Telegraph  Co.  v.  Barnes, 
supra,  which,  without  discussing  this  point,  in  effect  hold  that 
the  omission  of  an  officer  of  a  corporation  to  notify  a  surety  of 
the  default  of  his  principal  in  a  case  like  this,  and  the  continu- 
ance by  such  officer  of  the  employment  of  the  principal,  will 
discharge  the  surety  as  to  all  defaults  arising  during  the  subse- 
quent service.  And  in  Newark  v.  Stout,  52  N.  J.  Law,  35,  18 
Atl.  943,  the  New  Jersey  court,  while  adhering  generally  to  the 
doctrine  we  have  been  criticising,  yet  held  that  if  the  default 
and  dishonesty  of  a  municipal  officer  be  brought  to  the  atten- 
tion of  the  city  council,  which  is  clothed  with  the  power  to 
remove  him,  and  he  is  allowed  to  continue  in  the  service  with- 
out notice  to  and  assent  on  the  part  of  the  surety,  the  latter  will 
be  discharged  from  liability  as  to  all  subsequent  defaults.  It 
does  not  appear  to  have  been  so  considered  by  that  court;  but 
it  is  manifest  that  this  is  a  radical  departure  from  the  doctrine 
held  by  the  Pennsylvania,  Kentucky,  Maryland,  and  other  courts, 
and  relied  on  by  appellee  here,  and  goes  strongly  in  support  of 


198  THE    CONTRACT    DEFINED. 

the  contrary  rule,  which  we  believe  to  be  the  sound  one.  It  is 
also  to  be  noticed  thai  much  reliance  is  had  by  the  courts  hold- 
in--  that  a.  sinvty  of  one  ofii'-er  of  ;i  corporation  is  not  discharged 
by  the  acts  or  omissions  of  another,  in  the  particulars  under 
consideration,  on  cases  decided  by  the  supremo  court  of  the 
United  States  in  respect  of  sureties  of  public  officers.  Indeed,  it 
would  seem  thai  this  whole  doctrine  had  its  inception  in  this 
class  of  eases.  This  can  but  be  eonsidered  an  infirmative  cir- 
cumstance, going  to  the  soundness  ax  authority  of  those  cases 
which  involve  sureties  of  corporation  officers.  There  is  a  palpable 
and  manifest  distinction  between  the  two  classes  of  cases  beari ng 
directly  upon  this  question,  which,  while  requiring  the  applica- 
tion of  this  rule  to  public  officers  on  the  grounds  of  public  policy, 
ami  thai  laches  should  not  be  imputed  to  the  government,  does 
not  require  its  application  to  officers  of  corporations. 

We  bold  that  if  Walls,  while  acting  for  the  corporation  and 
in  the  capacity  of  its  agent,  with  respect  to  the  matters  and 
things  involved  in  Saint's  contract,  received  notice  of  such  a 
conversion  of  its  funds  by  Saint  as  amounted  to  embezzlement 
or  involved  dishonesty,  and,  without  imparting  this  knowledge 
to  the  sureties  and  receiving  their  assent  thereto,  continued  him 
in  the  service,  the  sureties  are  not  liable  for  Saint's  subsequent 
defaults.  Charges  5,  9  and  7,  requested  for  defendants,  when 
referred  to  the  evidence,  were  correct  expositions  of  the  law, 
as  we  understand,  in  this  connection.  The  refusal  of  the  court 
to  give  them  involved  error  which  must  work  a  reversal  of  the 
case.  Most  of  the  other  assignments  of  error  are  covered  by 
the  points  considered  in  the  first  part  of  this  opinion.  Such  of 
the  assignments  as  are  not  discussed  have  been  considered,  and 
found  to  be  without  merit. 

The  judgment  is  reversed,  and  the  cause  remanded. 


SMITH  v.  SHELDEN  ET  AL.  199 

SMITH  v.  SHELDEN  ET  AL. 

35  Mich.  42;  24  Am.  Rep.  529.    1876. 

Cooley,  Ch.  J.  The  legal  questions  in  this  case  arise  upon 
the  following  facts: 

Prior  to  June,  1867,  Eldad  Smith,  Isaac  Place,  and 
Francis  B.  Owen  were  partners  in  trade  under  the  firm  name  of 
Place,  Smith  &  Owen,  and  as  such  became  indebted  to  defend- 
ants in  error  in  the  sum  of  $969  on  book  account. 

In  the  month  mentioned  the  firm  was  dissolved  by  mutual 
consent,  Place  purchasing  the  assets  of  his  copartners  and  agree- 
ing to  pay  off  the  partnership  liabilities,  including  that  to  the 
defendants  in  error.  On  the  second  day  of  the  following  month 
Place  informed  the  defendants  in  error  of  this  arrangement,  and 
that  he  had  taken  the  assets  and  assumed  the  liabilities  of  the 
firm,  and  they,  without  the  consent  or  knowledge  of  Smith  and 
Owen,  took  from  Place  a  note  for  the  amount  of  the  firm  indebt- 
edness to  them,  payable  at  one  day  with  ten  per  centum  interest. 
They  did  not  agree  to  receive  this  note  in  payment  of  the  part- 
nership indebtedness,  but  they  kept  it  and  continued  their  deal- 
ings with  Place,  who  made  payments  upon  it.  The  payments, 
however,  did  not  keep  down  the  interest.  Place,  in  1872,  became 
insolvent  and  made  an  assignment,  and  Smith  was  then  called 
upon  to  make  payment  of  the  note.  This  was  the  first  notice  he 
had  that  he  was  looked  to  for  payment.  On  his  declining  to  make 
payment,  suit  was  brought  on  the  original  indebtedness  and 
judgment  recovered. 

The  position  taken  by  the  plaintiffs  below  was,  that  as  they 
had  never  received  payment  of  their  bill  for  merchandise  they 
were  entitled  to  recover  it  of  those  who  made  the  debt,  the  giving 
of  the  note  which  still  remained  unpaid  being  immaterial. 

On  behalf  of  Smith  it  was  contended  that,  by  the  arrange- 
ment between  Place  and  his  copartners,  the  latter,  as  between 
the  three,  became  the  principal  debtor,  and  that  from  the  time 
when  the  creditors  were  informed  of  this  arrangement  they  were 
bound  to  regard  Place  as  principal  debtor  and  Smith  and  Owen 
as  sureties,  and  that  any  dealing  of  the  creditors  with  the  prin- 
cipal to  the  injury  of  the  sureties  would  have  the  effect  to  release 


200  THE    CONTRACT    DEFINED. 

thi'in  from  liability.  Ami  it  is  further  a  ntended  that  the  taking 
of  the  oote  from  Place,  and  thereby  giving  him  time,  however 
short,  was  in  l;i\v  presumptively  injurious. 

Upon  this  sta.tr  of  facts  the  following  questions  have  been 
argued  in  this  court: 

1.  Was  the  uote  given  by  Place  in  the  copartnership  name 
for  the  copartnership  indebtedness,  bul  given  after  the  dissolu- 
tion, binding  upon  Smith  and  Owen? 

2.  If  Smith  and  Owen  were  not  hound  by  the  note,  were 
they  entitled  to  the  rights  of  the  sureties?    And 

3.  Did  the  taking  of  the  note  given  by  Place  discharge  Smith 
and  Owen  from  their  former  liability? 

On  the  first  point  it  is  argued  in  support  of  the  judgment 
thai  when  a  copartnership  is  dissolved  the  partner  who  is  en- 
trusted with  the  settlement  of  the  concern  should  be  held  to  have 
implied  authority  to  uivc  notes  in  settlement.  On  the  other 
hand  it  is  insisted  that  in  law  he  has  no  such  authority,  and  that 
if  he  assumes,  as  was  done  in  this  case,  to  give  a  note  in  the 
partnership  name,  it  will  in  law  he  his  individual  note  only. 

Whatever  might  he  the  case  if  the  obligation  which  was  given 
had  been  a  mere  acknowledgment  of  the  amount  due,  in  the  form 
of  a  due  bill  or  I  0  U,  we  are  satisfied  that  there  is  no  good  rea- 
son for  recognizing  in  the  partner  who  is  to  adjust  the  business 
of  the  concern  any  implied  authority  to  execute  such  a  note  as 
was  given  in  this  case.  This  note  was  something  more  than  a 
mere  acknowledgment  of  indebtedness;  and  it  bore  interest  at 
a  large  rate.  It  was  in  every  respect  a.  new  contract.  The  lia- 
bility of  the  parties  upon  their  indebtedness  would  be  increased 
by  it  if  valid,  and  their  rights  might  be  seriously  compromised 
by  the  execution  of  paper  payable  at  a  considerable  time  in  the 
future  if  the  partner  entrusted  with  the  adjustment  of  their  con- 
cerns were  authorized  to  make  new  contracts.  It  was  assumed  in 
F.  &  M.  Bank  v.  Kereheva.l,  2  Mich.  506-519,  that  the  law  was 
well  settled  that  no  such  implied  authority  existed,  and  we  are 
not  aware  that  this  has  before  been  questioned  in  this  state.  See 
Pennoyer  v.  David,  8  Mich.  407.  We  think  it  much  safer  to  re- 
quire express  authority  when  such  obligations  are  contemplated, 
than  to  leave  one  party  at  liberty  to  execute  at  discretion  new 
contracts  of  this  nature,  which   may  postpone  for  an  indefinite 


SMITH  v.  SHELDEN  ET  AL.  201 

period  the  settlement  of  their  concerns,  when  a  settlement  is  the 
very  purpose  for  which  he  is  to  act  at  all. 

For  a  determination  of  the  question  whether  Smith  and  Owen 
were  entitled  to  the  rights  of  sureties,  it  seems  only  necessary  to 
point  out  the  relative  position  of  the  several  parties  as  regards 
the  partnership  debt.  Place,  by  the  arrangement,  had  agreed  to 
pay  this  debt,  and  as  between  himself  and  Smith  and  Owen,  he 
was  legally  bound  to  do  so.  But  Smith  and  Owen  were  also 
liable  to  the  creditors  equally  with  Place,  and  the  latter  might 
look  to  all  three  together.  Had  they  done  so  and  made  collections 
from  Smith  and  Owen,  these  parties  would  have  been  entitled  to 
demand  indemnity  from  Place.  This  we  believe  to  be  a  correct 
statement  of  the  relative  rights  and  obligations  of  all. 

Now  a  surety,  as  we  understand  it,  is  a  person  who,  being 
liable  to  pay  a  debt  or  perform  an  obligation,  is  entitled,  if  it 
is  enforced  against  him,  to  be  indemnified  by  some  other  person, 
who  ought  himself  to  have  made  payment  or  performed  before 
the  surety  was  compelled  to  do  so.  It  is  immaterial  in  what  form 
the  relation  of  principal  and  surety  is  established,  or  whether 
the  creditor  is  or  is  not  contracted  with  in  the  two  capacities,  as 
is  often  the  case  when  notes  are  given  or  bonds  taken;  the  re- 
lation is  fixed  by  the  arrangement  and  equities  between  the 
debtors  or  obligors,  and  may  be  known  to  the  creditor,  or 
wholly  unknown.  If  it  is  unknown  to  him,  his  rights  are  in  no 
manner  affected  by  it;  but  if  he  knows  that  one  party  is  surety 
merely,  it  is  only  just  to  require  of  him  that  in  any  subsequent 
action  he  may  take  regarding  the  debt,  he  shall  not  lose  sight  of 
the  surety's  equities. 

That  Smith  and  Owen  were  sureties  for  Place,  and  the  latter 
was  principal  debtor  after  the  dissolution  of  the  copartnership, 
seems  to  us  unquestionable.  It  was  then  the  duty  of  Place  to  pay 
this  debt  and  save  them  from  being  called  upon  for  the  amount. 
But  if  the  creditors,  having  a  right  to  proceed  against  them  all, 
should  take  steps  for  that  purpose,  the  duty  of  Place  to  indem- 
nify, and  the  right  of  Smith  and  Owen  to  demand  indemnity, 
were  clear.  Every  element  of  suretyship  is  here  present,  as 
much  as  if,  in  contracting  an  original  indebtedness,  the  contract 
itself  had  been  made  to  show  on  its  face  that  one  of  the  obligors 
was  surety  merely.    As  already  stated,  it  is  immaterial  how  the 


202  THE    CONTRACT    DEFINED. 

fact  is  established,  or  whether  the  creditor  is  or  is  not  a  party 
to  the  arrangement  which  establishes  it. 

This  view  of  the  position  of  the  parties  indicates  clearly  the 
right  of  Smith  and  Owen  to  the  ordinary  rights  and  equities  of 
sureties.  The  cases  which  have  held  that  retiring  partners  thus 
situated  are  to  be  treated  as  sureties  merely,  have  attempted  no 
change  in  the  law,  bu1  are  entirely  in  harmony  with  older  au- 
thorities which  have  only  applied  the  like  principle  to  different 
states  of  facts,  where  the  relative  position  of  the  parties  as  re- 
gards the  debt  was  precisely  the  same.  We  do  not  regard  them 
as  working  any  innovation  whatever.  The  cases  we  particularly 
refer  to  are  Oakeley  v.  Pasheller,  4  CI.  &  Fin.,  207;  "Wilson  v. 
Loyd,  Law  R.,  16  Eq.  Cas.,  60 ;  and  Millerd  v.  Thorn,  56  N.  Y. 
402. 

And  it  follows  as  a  necessary  result  from  what  has  been 
stated,  that  Smith  and  Owen  were  discharged  by  the  arrange- 
ment made  by  the  creditors  with  Place.  They  took  his  note  on 
time,  with  knowledge  that  Place  had  become  the  principal 
debtor,  and  without  the  consent  or  knowledge  of  the  sureties. 
They  thereby  endangered  the  security  of  the  sureties,  and  as 
the  event  has  proved,  indulged  Place  until  the  security  became 
of  no  value.  True,  they  gave  but  very  short  time  in  the  first 
instance;  but,  as  remarked  by  the  vice  chancellor  in  Wilson  v. 
Loyd,  L.  P.,  16  Eq.  Cas.  60,  71,  "the  length  of  time  makes  no 
kind  of  difference."  The  time  was  the  same  in  Fellows  v.  Pren- 
tiss, 3  Denio,  512,  where  the  surety  was  also  held  discharged. 
And  see  Okie  v.  Spencer,  2  Whart.,  253.  But  that  indulgence 
beyond  the  time  fixed  was  contemplated  when  the  note  was  given 
is  manifest  from  the  fact  that  it  was  made  payable  with  interest. 
In  a  legal  point  of  view  this  would  be  immaterial,  but  it  has  a 
bearing  on  the  equities,  and  it  shows  that  the  creditors  received 
or  bargained  for  a  consideration  for  the  very  indulgence  which 
was  granted,  and  which  ended  in  the  insolvency  of  Place.  When 
they  thus  bargain  for  an  advantage  which  the  sureties  are  not 
to  share  wTith  them,  it  is  neither  right  nor  lawful  ft>r  them  to 
turn  over  to  the  sureties  all  the  risks.  This  is  the  legal  view  of 
such  a  transaction,  and  in  most  cases  it  works  substantial 
justice. 


AUD  v.  MAGRUDER.  203 

The  judgment  must  be  reversed,  with  costs,  and  a  new  trial 
ordered.    The  other  Justices  concurred. 


&UD  v.  MAGRUDER. 
10  Cal.  282.     1858. 

This  was  an  action  on  a  joint  and  several  promissory  note, 
executed  by  George  Rowe  and  the  respondent,  Lloyd  Magruder, 
and  delivered  to  the  appellant.  Suit  was  brought  against  both 
Rowe  and  Magruder.  The  defendants  filed  separate  answers. 
Rowe  pleaded  his  discharge  under  the  insolvent  law,  and  Ma- 
gruder set  up,  as  a  defense,  that  his  liability  on  the  note  was 
only  secondary ;  that  the  same  appeared  on  the  face  of  the  note ; 
that  he  was  only  a  surety,  and  that  payment  had  not  been  de- 
manded of  Rowe  at  the  maturity  of  the  note,  and  that  he  was 
not  notified  of  the  non-payment  thereof. 

The  note  is  in  the  usual  form  of  a  joint  and  several  promissory 
note.  But  after  the  signature  of  the  defendant  Magruder,  is 
added  the  abbreviation  "scty."  On  the  trial,  Magruder  proved 
by  oral  testimony  that  plaintiff  had  admitted  that  he  (Magru- 
der) was  a  surety  on  the  note  sued  on,  and  that  no  part  of  the 
sum  of  money  mentioned  in  the  note  passed  into  the  hands  of 
Magruder,  and  that  the  same  was  borrowed  by  the  defendant 
Rowe,  for  his  exclusive  benefit.  To  the  admissibility  of  which 
evidence  the  plaintiff  objected,  on  the  ground  that  such  evidence 
contradicted  and  varied  the  terms  of  the  note,  which  objection 
was  overruled  by  the  Court,  and  plaintiff  excepted.  It  was  ad- 
mitted by  the  plaintiff,  on  the  trial,  that  the  letters  "scty, "  after 
the  signature  of  the  defendant  Magruder,  were  intended  for  the 
word  "security." 

The  case  was  tried  without  a  jury,  and  the  Court  found: 

1.  That  defendant  Magruder  executed  the  note  as  surety. 

2.  That  his  liability  is  secondary. 

3.  That  at  the  time  of  the  execution  of  the  note,  the  plain- 
tiff knew  that  the  money  for  which  the  note  was  given  was 
wholly  for  the  use  and  benefit  of  the  defendant  Rowe,  and  that 
defendant  Magruder  was  only  an  accommodating  maker. 


THE    CONTRACT    DEFINED. 

4.  That  ;it  tin'  maturity  of  the  note,  do  demand  for  payment 
of  the  same  was  made  of  the  defendant  Rowe,  and  no  notice  of 
demand  and  non-payment  was  given  to  defendant  Magruder. 

Defendanl  had  judgment,  and  plaintiff  appealed  to  this  Court. 

Baldwin,  J.  This  record  presents  the  question  whether  a 
joint  maker  of  a  promissory  oote,  signing  it  as  surety,  is  en- 
titled to  demand  and  notice  before  he  can  be  held  to  pay  it. 
We  state  the  proposition  in  this  simple  form;  for,  though  some 
technical  objections  are  interposed  to  the  mode  of  proof,  we  do 
qoI   think  it   necessary  to  notice  them. 

An  unvarying  currenl  of  decisions  in  other  States,  and  the 
well-settled  doctrine  of  the  English  Courts,  places  the  obliga- 
tion of  the  surety  in  such  cases  upon  the  footing  of  an  original 
promise;  and  such,  we  apprehend,  has  been  the  understanding 
of  the  profession  and  of  commercial  men  generally  in  this  State, 
until  the  decision  of  Bryan  v.  Berry,  6  Cal.  394,  which  announced 
a  contrary  doctrine.  Indeed,  the  Court,  in  Humphreys  v.  Yale, 
5  Cal.  173,  recognizes  the  same  rule.  In  that  case,  the  defense 
was  that  the  note  had  been  altered.  The  alteration  was  alleged 
to  be  made  by  tearing  the  word  "surety"  from  the  note,  where 
it  stood  opposite  to  the  name  of  Yale.  The  complaint  did  not  aver 
demand  and  notice,  hut  counted  on  the  note  as  an  original  prom- 
ise, so  that  the  alteration  was  material;  it  changed  the  contract 
from  one  upon  which  the  plaintiff  could  not  recover  to  one  upon 
which  he  could.  The  Court  say,  in  delivering  the  opinion  :  "The 
demurrer  was  well  taken;  first,  because  the  owner  does  not  aver 
that  the  alteration  was  made  with  the  knowledge  or  consent,  or 
by  the  authority  of  the  plaintiff;  and,  second,  because  the  altera- 
tion was  not  material  so  far  as  it  affects  any  of  the  matters  set 
up  in  the  defense.  The  defendants  were  liable  to  the  plaintiff, 
whether  they  signed  as  principals  or  sureties,  and  it  is  well  set- 
tled that  an  alteration  which  does  not  alter  the  meaning,  the 
nature,  or  the  subject-matter  of  the  contract,  is  immaterial." 
The  matter  set  up  in  defense  was  this  alteration;  and,  although 
other  grounds  of  objection  to  the  answer  were  given,  yet  this 
does  not  impair  the  authority  of  the  decision  as  to  this  point. 

The  case  was  argued  very  elaborately  upon  the  final  hearing, 
and  the  briefs  of  counsel  exhibit  a  thorough  examination  of  the 
whole  doctrine  involved. 


AUD  v.  MAGRUDER.  205 

The  case  of  Bryan  v.  Berry  seems  to  us  to  rest  upon  mistaken 
views  of  the  relation  which  a  party  signing  a  joint  note  with 
another,  for  the  latter 's  accommodation,  bears  to  the  creditor. 
It  assumes  that  such  a  surety  is  a  mere  guarantor  or  indorser. 
But  the  two  classes  of  obligation  are  widely  variant.  The  maker 
upon  the  face  of  the  paper,  with  whatever  motive  or  purpose  he 
may  sign  it,  is  bound  by  the  contract  which  he  signs,  according  to 
the  legal  effect  and  meaning  of  the  words.  He  cannot  vary  that 
meaning  by  parol.  The  words  import  an  unconditional  promise 
to  pay  the  payee  so  much  money  at  a  certain  time.  The  law 
affixes  to  this  unequivocal  language  its  obvious  signification.  The 
payor  is  not  permitted  to  contradict  the  words  by  showing  that 
when  he  promised  to  pay  absolutely,  he  meant  to  bind  himself  to 
pay  conditionally,  or  on  some  contingency,  or  if  another  did  not, 
or  if  demand  was  made  and  notice  given.  This  contract  being  his 
own,  and  precise  in  its  terms,  he  must  fulfill  it  according  to  those 
terms.  He  is  not  and  this  is  the  distinction  in  the  two  classes  of 
engagements — guaranteeing  another's  contract,  but  he  is  making 
his  own;  and  whether  the  consideration  of  the  contract  inure  to 
him  or  to  his  friend  is  wholly  immaterial,  so  far  as  the  construc- 
tion and  obligation  of  it  are  concerned.  An  indorsement  or  a 
guaranty  of  a  note  is  wholly  different.  It  is  an  agreement  of 
itself — a  new  contract  undertaken  for  another,  that  the  latter 
will  perform  his  contract.  The  difference  between  a  maker  and 
an  indorser  or  guarantor  is,  that  the  contract  of  the  first,  by  its 
terms,  imports  an  unconditional  obligation  to  pay  money — that 
of  the  last,  by  its  terms,  imports  a  conditional  obligation.  The 
rules  of  law  settle  this  species  of  contracts  as  well  as  others,  and 
prescribe  how  they  may  be  created — their  legal  effect,  and  mode 
of  enforcement.  The  creditor  may  take  his  security  in  either 
form ;  the  other  parties  may  contract  or  not  as  they  choose ;  but 
the  contracts,  when  made,  must  stand  or  fall  by  the  legal  rules 
prescribed  for  them  respectively.  There  is  no  magic  in  the  words 
"surety"  or  "guarantor,"  which  give  to  a  contract  made  by  this 
class  of  contractors. any  effect  denied  to  the  contracts  of  other 
persons.  A  surety  for  another  may  bind  himself  to  a  creditor  for 
his  principal,  if  he  uses  apt  words  of  obligation,  just  as  an  agent 
may  be  bound  for  his  principal,  or  a  principal  for  himself — the 
obligation  arising  from  the  language  of  contract,  not  the  man 


206  THE    CONTRACT    DEFINED. 

who  makes  it.  We  can  see  no  reason,  if  the  parties  so  agree,  why 
the  guarantor  or  indorser  may  not  bind  himself,  absolutely  and 
primarily,  to  pay  the  debt  of  another;  nor  why  a  man  may  not  as 
well  bind  himself  primarily  to  pay  a  note  for  another  as  surety 
for  the  other,  as  well  as  secondarily,  lie  may  pledge  his  goods 
or  credits,  or  note,  for  him,  and  hind  himself,  without  respect 
to  any  act  to  be  done  by  the  principal  or  the  creditor.  Precisely 
such  is  the  nature  of  an  obligation  made  in  absolute  terms,  on  a 
consideration,  by  A.,  to  pay  so  many  dollars  to  B.  by  a  certain 
day,  though  the  note  should  say  in  the  body  of  it  that  A.  prom- 
ised to  pay  for  C,  or  as  surety  for  C.  If  such  a  note  could  be 
enforced  as  an  original  promise,  if  made  by  A.  alone,  how  is  it 
less  an  original  promise  when  made  by  A.  and  C,  jointly  and 
severally,  as  in  this  case,  though  the  joint  note  showed  that  A. 
made  it  as  surety  for  C?  It  is  immaterial  to  the  payee  how  or 
why  A.  signs  it ;  that  is  a  matter  between  the  two  payors ;  he  is 
satisfied  with  holding  them  both  as  principals  to  him,  and  in 
doing  this  he  is  only  enforcing  the  language  of  their  own  volun- 
tary contract,  according  to  its  own  plain  words.  In  truth,  the 
error,  as  we  take  it,  in  Bryan  v.  Berry,  is,  in  supposing  that 
whenever  a  party  is  shown  to  be  a  surety  he  is  necessarily,  with- 
out reference  to  the  form  of  the  engagement,  a  guarantor.  A 
guarantor  may,  usually,  be  a  surety,  but  a  surety  is  not  necessa- 
rily a  guarantor.  The  Court  say:  "It  is  not  so  much  the  position 
of  the  party's  name  upon  the  paper  which  denotes  his  liability 
(although  it  frequently  does  so),  but  it  is  the  intention  with 
which  he  executes  it,  if  such  intention  is  made  to  appear  by  the 
note  itself,  which  determines  whether  his  ability  is  primary  or 
secondary."  This  may  be;  but  we  think,  with  great  deference, 
that  the  position  of  the  names  beneath  the  words  which  import 
a  direct,  primary  obligation  to  pay  the  money  to  the  payee,  is 
conclusive  evidence  of  that  intention;  the  bare  name  on  the 
back  of  the  paper  might  not  be.  The  word  "surety,"  written 
opposite  the  name  of  one  of  the  makers,  is  held  to  indicate  no 
more  than  that,  as  between  the  payors,  such  maker  is  his  surety. 
It  is  convenient  for  the  purpose  of  evidence,  in  case  the  surety 
has  to  pay  the  money,  but  it  does  not  in  any  way  control  the 
words  of  the  note  as  between  such  payor  and  the  payee;  for 
as  we  said  before,  there  is  no  necessary  inconsistency  between  an 


AUD  v.  MAGRUDER.  207 

absolute  engagement  to  pay  money  and  paying  it  on  behalf  or  as 
security  for  another  man :  Story  on  Promissory  Notes,  §  57 ; 
Hunt  v.  Adams,  5  Mass.  358 ;  Morris  v.  Bird,  11  Mass.  438,  and 
the  numerous  authorities  cited  in  the  appellant's  brief. 

If  the  law  be  as  we  have  stated,  it  is  useless  to  inquire  into  the 
intention  of  the  payor  in  such  a  case ;  the  intent  must  be  pre- 
sumed to  be  according  to  the  law.  But  if  we  were  to  hazard  any 
opinion  upon  the  subject,  apart  from  this,  we  incline  very  strong- 
ly to  think  that,  among  business  men,  the  idea  is  very  general 
that  a  person  signing  a  note  as  surety  for  another,  makes  him- 
self immediately  and  directly  responsible  for  the  debt. 

In  overruling  the  case  of  Bryan  v.  Berry,  we  feel  less  reluc- 
tance because  we  think  that  the  principle  there  laid  down  is  of 
injurious  import.  We  think  that  principles  of  commercial  law, 
long  established  and  maintained  by  a  consistent  course  of  de- 
cision in  the  other  States,  should  not  be  disturbed;  that  the 
tendency  of  such  disturbance,  in  any  instance,  is  to  confusion 
and  uncertainty,  and  gives  rise  to  perplexing  litigation,  and 
doubts,  and  uneasiness  in  the  public  mind.  Almost  any  general 
rule  governing  commercial  transactions,  if  it  have  been  long  and 
consistently  upheld  as  a  part  of  the  general  system,  is  better  than 
a  rule  superseding  it,  though  the  latter  were  much  better  as  an 
original  proposition.  Men  knowing  how  the  law  has  been  gen- 
erally received  and  repeatedly  adjudged,  govern  themselves  and 
are  advised  by  their  counsel  accordingly;  but  if  Courts  establish 
new  rules  whenever  they  are  dissatisfied  with  the  reasons  upon 
which  the  old  ones  rest,  the  standards  of  commercial  transactions 
would  be  destroyed,  and  commercial  business  regulated  by  a 
mere  guess  at  what  the  opinion  of  Judges  for  the  time  might  be, 
and  not  by  a  knowledge  of  what  the  doctrines  of  recognized 
works  of  authority  and  the  precedents  of  the  Courts  are.  The 
commercial  law  has  a  system  of  its  own,  built  up  by  centuries 
and  the  wisdom  of  learned  jurists  all  over  the  world.  It  is  not 
local,  but  applicable  to  all  States,  with  few  modifications;  and 
California,  eminently  commercial  in  its  character  and  in  close 
commercial  connection  with  the  other  States,  finds  her  interest 
and  safety  in  adhering  to  the  well-settled  general  rules  which 
prevail  in  those  States  as  the  laws  of  trade.  We  repeat,  the  sta- 
bility and  certainty  of  these  rules  are  of  more  importance  than 


208  THE    CONTRACT    DEFINED. 

any  fancied  benefits  which  mighl  accrue  from  any  innovation  up- 
on the  system.  Innovation  begets  innovation,  and  we  cannot  al- 
ways  sic  with  clearness  what  is  to  be  the  consequence  of  the  new 
rule  established.  This  case  itself  is  a  good  illustration;  for,  if 
the  doctrine  be  carried  to  its  logical  consequences,  and  whenever 
it  appears,  on  the  face  of  a  security  for  money,  a  party  is  a 
surety,  he  is  entitled  to  be  held  as  a  guarantor,  what  becomes  of 
undertakings,  acceptances  Tor  accommodation,  etc.?  for,  in  the 
Litter  cases,  why  might  not  pat-el  evidence  be  admitted  to  show 
that  tli«'  party  was  only  accommodation  acceptor,  in  a  contest 
between  the  original  parties,  as  to  show  the  same  fact,  as  is  fre- 
quently done,  when  suit  is  brought  to  recover  money  of  the 
principal  which  the  acceptor  has  paid  on  the  acceptance?  Ami 
so,  where  the  party  does  not  sign  as  surety,  but  really  is  such? 

The  doctrine  of  stare  dt  cisis,  seriously  invoked  by  the  re- 
spondent's counsel,  can  have  do  effect;  or,  if  any,  only  the  effect 
to  induce  us  the  more  readily  to  return  to  a  principle  recognized, 
we  believe,  for  many  years  everywhere  else  in  the  commercial 
world.  The  conservative  doctrine  of  stare  decisis  was  never  de- 
signed to  protect  such  an  innovation. 

Judgment  reversed,  and  cause  remanded. 


Who  May  Become  a  Surety  or  Guarantor* 

KIMBALL  v.  NEWELL. 

7  Hill  (N.Y.)  116.     1845. 

On  error  from  the  superior  court  of  the  city  of  New  York, 
Newell  brought  an  action  of  covenant  against  Kimball  in  the 
marine  court  of  the  city  of  New  York,  claiming  to  recover  certain 
rent  due  on  a  lease  to  one  Theodosia  Knowlton,  for  whom  the  de- 
fendant had  become  surety.  On  the  trial,  the  plaintiff  gave  in 
evidence  the  following  instruments: 

"This  is  to  certify  that  1  have  hired  and  taken  from  Daniel 
Newell  the  house  in  Nassau  street,  etc.,  for  one  year,  to  commence 

*  See  Sec.  870,  Vol.  6,  Cyclopedia  of  Law. 


KIMBALL  v.  NEWELL.  209 

on  the  first  day  of  May  next,  at  the  yearly  rent  of  four  hundred 
and  fifty  dollars,  payable  quarterly.  And  I  do  hereby  promise 
to  make  punctual  payment  of  the  rent,  in  manner  aforesaid,  and 
quit  and  surrender  the  premises,  at  the  expiration  of  the  term, 
in  as  good  state  and  condition  as  reasonable  use  and  wear  thereof 
will  permit,  damages  by  the  elements  excepted.  Given  under  my 
hand  and  seal  the  3rd  day  of  March,  1840. 

Mrs.  T.  Knowlton,  [L.  S.]  " 

"In  consideration  of  the  letting  of  the  premises  above  de- 
scribed, and  for  the  sum  of  one  dollar,  I  hereby  become  surety 
for  the  punctual  payment  for  the  rent,  and  performance  of  the 
covenants,  in  the  above  written  agreement  mentioned,  to  be  paid 
and  performed  by  Mrs.  Theodosia  Knowlton,  and  if  any  default 
should  be  made  therein,  I  do  hereby  promise  and  agree  to  pay 
unto  the  said  Daniel  Newell  such  sum  or  sums  of  money  as  will 
be  sufficient  to  make  up  such  deficiency,  and  fully  satisfy  the 
conditions  of  the  said  agreement,  without  requiring  any  notice 
of  non-payment,  or  proof  of  demand  being  made.  Given  under 
my  hand  and  seal  the  3d  day  of  March,  1840. 

"M.  T.  C.  Kimball,  [L.  S.]" 

It  appeared  that  Mrs.  Knowlton  occupied  under  the  lease,  and 
that  a  balance  of  rent,  amounting  to  $31.94,  remained  due  the 
plaintiff.  It  further  appeared  that  Mrs.  Knowlton  was  a  mar- 
ried woman  at  the  time  the  lease  was  executed;  and  the  de- 
fendant contended  that,  inasmuch  as  her  covenant  was  void  by 
reason  of  coverture,  his  was  also  void.  The  marine  court  held 
otherwise,  however,  and  rendered  judgment  in  favor  of  the 
plaintiff,  which  was  afterwards  affirmed  by  the  superior  court  on 
certiorari,  and  the  defendant  brought  error. 

Nelson,  Ch.  J.  The  defendant  having  consented  to  become 
bound  as  surety  for  the  rent  of  the  premises  leased  to  Mrs. 
Knowlton,  it  is  but  reasonable  to  presume  that,  if  he  was  not 
well  acquainted  with  her  situation  before,  he  then  made  some 
enquiries  into  her  circumstances  and  condition,  and  thus  became 
fully  possessed  of  the  facts  which  he  now  sets  up  as  a  ground  of 
discharge. 

But  conceding  that  the  defendant  had  no  knowledge  of  the 
social  condition  of  Mrs.  Knowlton,  and  that  he  supposed  she 
would  be  legally  holden  for  the  rent  as  it  accrued,  I  am  still  of 
the  opinion  that  he  is  liable  on  his  contract.     The  doctrine  for 


210  THE    CONTRACT    DEFINED. 

which  his  counsel  contends  is  thus  stated  by  Theobald:  "The 
obligation  of  the  surety  being  accessory  to  the  obligation  of  some 
person  who  is  the  principal  debtor,  it  is  of  its  essence  that  there 
should  be  a  valid  obligation  of  a  principal  debtor.  The  nullity 
of  tin-  principal  obligation  necessarily  induces  the  nullity  of  the 
accessory."  (Theob.  Prin.  &  Sur.  2.)  This  is  undoubtedly 
correct  as  a  general  rule;  but  it  has  its  exceptions,  and  the  case 
before  us  is  one  of  them. 

Mr.  Chitty  says:  "The  rule  that  a  party  can  not  be  liable 
upon  a  contract  of  guarantee,  unless  the  principal  has  incurred 
a  legal  responsibility,  is  true,  in  some  instances,  in  form  or 
words,  rather  than  in  substance. "  (Chitty  on  Contr.,  499.)  He 
adds:  "In  the  case  of  a  guarantee  to  answer  for  the  price  of 
goods  to  be  supplied  to  a  married  woman,  or  goods  (not  neces- 
saries) to  be  sold  to  an  infant,  or  other  persons  incompetent  to 
contract,  no  doubt  the  party  guaranteeing,  though  professedly 
contracting  only  in  the  character  of  surety,  would  be  responsi- 
ble." (Id.)  He  refers  to  the  case  of  Maggs  v.  Ames  (4  Bing. 
470),  which  was  an  action  against  the  defendant  as  surety  for 
a  married  woman.  There  the  question  was  whether  the  under- 
taking of  the  defendant  was  an  original  one,  so  as  not  to  require 
it  to  be  in  writing.  The  court  held  that  it  was  collateral,  and 
therefore  should  have  been  in  writing.  But  neither  the  counsel 
nor  court  supposed  that  the  defendant  would  not  have  been 
bound,  if  the  contract  had  been  in  writing.  On  the  contrary, 
that  was  assumed.  In  the  case  of  White  v.  Cuyler  (6  T.  R.  176), 
it  was  impliedly  at  least  conceded  by  Lord  Kenyon,  that  a  guar- 
antor or  surety  for  a  feme  covert  would  be  liable  on  his  con- 
tract. (See  also  Chitty  on  Contr.,  515;  Pitman  on  Prin.  and 
Surety,  13;  Buckmyr  v.  Darnall  (2  Ld.  Raym.  1085);  Harris 
v.  Hunchback  (1  Burr.  373)  ;  Chapin  v.  Lapham  (20  Pick.  467). 

The  doctrine  of  the  civil  law  is  very  clear  and  satisfactory  on 
this  subject.  It  is  as  follows:  "Although  the  obligation  of  a 
surety  be  only  an  accessory  to  that  of  the  principal  debtor,  yet 
he  who  has  bound  himself  surety  for  a  person  who  may  get 
himself  relieved  from  his  obligation,  such  as  a  minor,  or  a  prodi- 
gal wrho  is  interdicted,  is  not  discharged  from  his  suretyship 
by  the  restitution  of  the  principal  debtor:  and  the  obligation 
subsists   in   his   person ;   unless  the   restitution  were   grounded 


KIMBALL  v.  NEWELL.  211 

upon  some  fraud,  or  other  vice  which  would  have  the  effect  to 
annul  the  right  of  the  creditor."  (Dom.  B.  3  tit.  §  1,  art.  10, 
Strahan's  ed.)  Again:  If  the  principal  obligation  was  an- 
nulled only  because  of  some  personal  exception  which  the  prin- 
cipal debtor  had,  as  if  it  was  a  minor,  who,  in  consideration  of 
his  being  under  age,  got  himself  relieved  from  an  engagement 
by  which  he  suffered  some  prejudice,  and  that  there  had  been  no 
fraud  on  the  creditor's  part;  the  restitution  of  the  minor  would 
have  indeed  this  effect,  that  it  would  annul  his  obligation  to  the 
creditor,  and  his  engagement  to  save  harmless  his  surety,  if  he 
desired  to  be  relieved  from  it.  But  the  said  restitution  of  the 
minor  would  not  in  the  least  invalidate  the  surety 's  obligation  to 
the  creditor.  For  it  was  only  to  make  good  the  obligation  of  the 
minor,  in  case  he  should  be  relieved  from  it  on  account  of  his 
age,  that  the  creditor  took  the  additional  security  of  a  surety." 
(Id.,  B.  3,  tit.  4,  §  5,  art.  2;  and  see  1  Ev.  Poth.  on  Obi.  237.) 

I  am  satisfied  that  the  decision  of  the  court  below  was  right, 
and  that  the  judgment  should  be  affirmed. 

Beardsley,  J.  I  think  the  defendant  was  estopped  from 
denying  the  competency  of  Mrs.  Knowlton  to  bind  herself  by 
the  covenant  she  assumed  to  execute.  The  defendant  by  his 
covenant  admits  she  was  thus  bound,  and  he  shall  not  be  al- 
lowed to  gainsay  it  by  alleging  her  incapacity  to  make  a  legal 
contract.  Had  she  been  induced  to  enter  into  this  engagement 
by  fraud  or  imposition,  or  upon  a  usurious  consideration,  the 
case  might  have  been  otherwise;  but  the  defendant,  although  a 
surety,  cannot  be  permitted,  on  the  ground  now  set  up,  to  deny 
the  legal  existence  of  a  covenant  which  is  explicitly  conceded  by 
his  own  deed.  (Co.  Litt.  352,  a,  note  306;  1  Stark.  Ev.  302,  Am. 
ed.  of  1830;  Greenl.  Ev.,  §§  22  to  26,  and  the  notes.) 

The  judgment  of  the  court  below  is  right,  and  should  be 
affirmed. 

Judgment  affirmed. 


212  THE    CONTRACT    DEFINED. 

TRIMBLE  v.  RUDY. 
.  .  Ey ,  53  L.  B.  A.  353;  GO  8.  W.  650.     1901. 

Appeal  by  plaintiff  from  a  judgment  of  the  Circuit  Court 
for  Henderson  county  in  favor  of  defendant  in  an  action  to  en- 
force a  promise  by  defendant  to  reimburse  plaintiff's  assignee 
for  the  amount  which  he  had  paid  as  surety  for  defendant's 
husband.     Affirmed. 

The  facts  art'  stated  in  the  opinion. 

O'Reak,  J.  While  appellee  was  a  married  woman,  and  before 
the  enactment  of  our  present  married  women's  act,  appellant  H. 
S.  Holloway,  who  was  her  kinsman,  executed  to  the  Planters' 
Bank  a  note  for  $2,500,  and  one  to  the  Farmers'  Bank  for  $900, 
as  surety  of  appellee's  husband.  Appellant  claims  that  he  was 
induced  to  incur  these  liabilities  by  appellee's  personal  assur- 
ances or  pr<  mises  of  indemnity  against  loss,  and  that  he  would 
not  haw  done  so  but  for  Ins  reliance  upon  her  agreement  to  keep 
him  from  loss  on  that  account.  The  husband  died  in  1893,  after 
appellant's  liability  had  been  assumed,  and  left  an  estate  totally 
insolvent.  After  the  husband's  death  appellee  wrote  appellant 
asking  him  to  pay  off  the  notes  in  question,  and  again  prom- 
ising to  indemnify  him  against  loss.  Appellant  did  pay  off  these 
notes,  because,  he  says,  of  this  solicitation  and  promise.  Appellee 
declining  to  comply  with  her  agreement  to  repay  the  surety 
these  sums  paid  by  him,  he  sued  her  on  the  last-named  or  writ- 
ten promise  to  pay.  Other  allegations  were  contained  in  the 
petition,  but  were  denied,  and,  there  being  a  total  failure  of 
proof  as  to  those  that  were  denied,  we  are  to  determine  whether 
the  trial  court's  peremptory  instruction  to  the  jury  to  find  for 
the  defendant  was  proper.  The  determination  of  that  question 
involves  the  one  whether  the  promise  of  a  married  woman,  made 
while  under  the  disability  of  coverture,  inducing  another  to  be- 
come bound  as  the  surety  of  her  husband,  is  a  sufficient  con- 
sideration to  support  a  promise  of  indemnity  made  to  the  surety 
after  the  removal  of  such  disability. 

It  is  argued  for  appellant  that  her  original  promise  was  based 
upon  facts  imposing  upon  her  a  moral  obligation,  and  that  al- 
though not  legally  binding  because  the  law  prohibited  her  from 


TRIMBLE  v.  RUDY.  213 

legally  binding  herself,  upon  the  law's  restrictions  being  removed 
the  original  moral  obligation  was  enough  to  support  a  new 
promise  to  pay.  While  formerly  extensively  held  that  a  moral 
obligation  was  a  sufficient  consideration  to  uphold  a  contract  be- 
tween competent  parties,  it  has  lately  come  to  be  denied,  until 
it  may  now  be  seriously  doubted  whether  the  ancient  rule  longer 
obtains.  Bishop,  Contr.  44,  and  cases  cited;  Parsons,  Contr. 
432,  435,  and  notes.  It  has  been  held  in  this  state  that  a  moral 
obligation,  where  it  has  also  been  a  legal  one,  might  be  the  con- 
sideration of  a  new  contract  (Montgomery  v.  Lampton,  3  Met. 
520;  Muir  v.  Gross,  10  B.  Mon.  282)  ;  but  we  are  not  aware  that 
the  rule  has  been  extended  further,  and,  in  the  light  of  the  trend 
of  the  later  cases,  we  are  disinclined  to  so  extend  it. 

We  have  repeatedly  held  that  the  contract  of  a  married 
woman,  not  with  reference  to  her  separate  estate,  and  where  not 
especially  allowed  by  statute,  was  void,  and  that  her  subsequent 
promise  to  pay  such  an  obligation,  made  after  discoverture,  was 
likewise  void, — the  first,  because  she  was  not  competent  to  make 
the  contract;  the  second,  because  there  was  no  consideration  to 
support  it.  Robinson  v.  Robinson,  11  Bush,  179 ;  Jennings  v. 
Crider,  2  Bush,  322,  92  Am.  Dec.  487;  Russell  v.  Rice,  19  Ky. 
L.  Rep.  1613,  44  S.  W.  110;  Chaney  v.  Flynn,  2  Ky.  L.  Rep.  417 ; 
and  others. 

We  think  the  fair  deduction  from  the  foregoing  line  of  de- 
cisions is  that,  without  reference  to  what  may  have  been  the 
merit  of  the  consideration  of  the  original  promise,  the  new  con- 
tract, to  be  binding,  must  be  based  upon  a  new  consideration, 
legal  and  sufficient  of  itself,  and  independent  of  the  original 
one.  That  the  surety  paid  off  these  notes  upon  the  faith  of  the 
appellee's  letter  was  not  such  new  consideration;  for  he  as- 
sumed no  new  condition,  and  did  nothing  he  was  not  already 
legally  bound  to  do. 

It  follows  that  the  giving  of  the  peremptory  instruction  was 
proper,  and  the  judgment  is  therefore  affirmed. 


214  THE    CONTRACT    DEFINED. 


The  Consideration  for  the  Promise  of  the  Surety  or  Guarantor.* 

DAVIS  ET  AL.,  PLFFS.  IN   ERR.,   v.  WELLS,   FARGO,  & 

COMPANY. 

104  U.  8.  161;  L.  Ed'n,  Book  26,  686.     1881. 

In  error  to  the  Supreme  Court  of  the  Territory  of  Utah. 
Mr.  Justice  Matthews  delivered  the  opinion  of  the  court: 
The  action  below  was  brought  by  Wells,  Fargo  &  Co.,  against 
the  plaintiffs  in  error,  upon  a  guaranty,  in  the  following  words : 

"For  and  in  consideration  of  one  dollar  to  us  in  hand  paid  by 
Wells,  Fargo  &  Co.  (the  receipt  of  which  is  hereby  acknowl- 
edged), we  hereby  guarantee  unto  them,  the  said  Wells,  Farge- 
&  Co.,  unconditionally  at  all  times,  any  indebtedness  of  Gordon 
&  Co.,  a  firm  now  doing  business  at  Salt  Lake  City,  Territory  of 
1  tah,  to  the  extent  of  and  not  exceeding  the  sum  of  ten  thousand 
dollars  ($10,000)  for  any  overdrafts  now  made,  or  that  may 
hereafter  be  made,  at  the  bank  of  said  Wells,  Fargo  &  Co. 

This  guaranty  to  be  an  open  one,  and  to  continue  one  at  all 
times  to  the  amount  of  ten  thousand  dollars,  until  revoked  by  us 
in  writing. 

Dated,  Salt  Lake  City,  11th  November,  1874. 

In  witness  whereof  we  have  hereunto  set  our  hands  and  seals 
the  day  and  year  above  written. 

Erwin   Davis.  [seal] 

J.  N.  H.  Patrick,     [seal] 

Witness:   'J.  Gordon." 

The  answer  set  up,  by  way  of  defense,  that  there  was  no 
notice  to  the  defendants  from  the  plaintiffs  of  their  acceptance 
of  the  guaranty,  and  their  intention  to  act  under  it;  and  no 
notice,  after  the  account  was  closed,  of  the  amount  due  thereon ; 
and  no  notice  of  the  demand  of  payment  upon  Gordon  &  Co.,  and 
of  their  failure  to  pay  within  a  reasonable  time  thereafter. 

But  there  was  no  allegation  that  by  reason  thereof  any  loss  or 
damage  had  accrued  to  the  defendants. 

On  the  trial  it  was  in  evidence  that  this  guaranty  was  exe- 
cuted by  the  defendants  below  and  delivered  to  Gordon  on  the 
day  of  its  date,  for  delivery  by  him  to  Wells,  Fargo  &  Co., 

*  See  Sec.  871,  Vol.  6,  Cyclopedia  of  Law. 


DAVIS  v.  WELLS,  FARGO  &  CO.  215 

which  took  place  on  the  same  day ;  that  Gordon  &  Co.  were  then 
indebted  to  the  plaintiffs  below  for  a  balance  of  over  $9,000  on 
their  bank  account;  that  their  account  continued  to  be  over- 
drawn, Wells,  Fargo  &  Co.  permitting  it  on  the  faith  of  the 
guaranty,  from  that  time  till  July  31,  1875,  when  it  was  closed, 
with  a  debit  balance  of  $6,200 ;  that  the  account  was  stated  and 
payment  demanded  at  that  time  of  Gordon  &  Co.,  who  failed  to 
make  payment;  that  a  formal  notice  of  the  amount  due  and 
demand  of  payment  was  made  by  Wells,  Fargo  &  Co.,  of  the  de- 
fendants below,  on  May  26,  1876,  the  day  before  the  action  was 
brought.  There  was  no  evidence  of  any  other  notice  having 
been  given  in  reference  to  it ;  either  that  Wells,  Fargo  &  Co.  ac- 
cepted it  and  intended  to  rely  upon  it,  or  of  the  amount  of  the 
balance  due  at  or  after  the  account  was  closed ;  and  no  evidence 
was  offered  of  any  loss  or  damage  to  the  defendants  by  reason 
therefore,  or  in  consequence  of  the  delay  in  giving  the  final 
notice  of  Gordon  &  Co.'s  default. 

The  defendant's  counsel  requested  the  court,  among  others 
not  necessary  to  refer  to,  to  give  to  the  jury  the  following  in- 
structions, numbered,  first,  second,  third  and  fifth: 

1.  If  the  jury  believes  from  the  evidence  that  the  guaranty 
sued  upon  was  delivered  by  the  defendants  to  Joseph  Gordon, 
and  not  to  the  plaintiff,  but  was  afterwards  delivered  to  the 
latter  by  Joseph  Gordon,  or  by  Gordon  &  Co.,  it  became  and 
was  the  duty  of  Wells,  Fargo  &  Co.  thereupon  to  notify  the  de- 
fendants of  the  acceptance  of  said  guaranty,  and  their  intention 
to  make  advancements  on  the  faith  of  it,  and,  if  they  neglected 
or  failed  so  to  do,  the  defendants  are  not  liable  on  the  guaranty, 
and  your  verdict  must  be  for  the  defendants. 

2.  If  Wells,  Fargo  &  Co.  made  any  advancements  to  Gordon 
&  Co.  on  overdrafts  on  the  faith  of  said  guaranty,  it  became 
and  was  the  duty  of  plaintiff  to  notify  the  defendants,  within 
a  reasonable  time  after  the  last  of  said  advancements,  of  the 
amount  advanced  under  the  guaranty,  and  if  the  plaintiff  failed 
or  neglected  so  to  do,  it  cannot  recover  under  the  guaranty,  and 
your  verdict  must  be  for  the  defendants. 

3.  What  is  a  reasonable  time  in  which  notice  should  be 
given  is  a  question  of  law  for  the  court.  Whether  notice  was 
given  is  one  of  fact  for  the  jury.    The  court,  therefore,  instructs 


216  THE    CONTRACT    DEFINED. 

you  that  if  notice  of  the  advancements  made  under  said  guaran- 
ty was  not  given  until  after  the  lapse  of  twelve  months  or  up- 
ward from  the  time  the  last  advancement  was  made  to  Gordon 
&  Co.,  this  was  not,  in  contemplation  of  law,  a  reasonable  notice, 
and  your  verdict,  if  you  so  find  the  fact  to  be,  should  be  for 
the  defendants. 

5.  Before  any  righl  of  action  accrued  in  favor  of  plaintiff 
under  said  guaranty,  it  was  incumbent  on  it  to  demand  payment 
of  the  principal  debtor.  Gordon  &  Co.,  and,  on  their  refusal  to 
pay,  to  notify  the  defendants.  If  the  jury,  therefore,  find  that 
no  such  demand  was  made,  and  no  notice  given  to  the  defend- 
ants, the  plaintiff  cannot  recover  upon  the  guaranty. 

The  court  refused  to  give  each  of  these  instructions,  and  the 
defendants  excepted. 

The  following  instructions  were  given  by  the  court  to  the  jury, 
to  the  giving  of  each  of  which  the  defendants  excepted: 

1.  You  are  instructed  that  the  written  guaranty  offered  in 
evidence  in  this  case  is  an  unconditional  guaranty  by  defendants, 
of  any  and  all  overdrafts,  not  exceeding  in  amount  $10,000,  for 
which  said  Gordon  &  Co.  were  indebted  to  the  plaintiff  at  the 
date  of  the  commencement  of  this  suit.  If  the  jury  believe  from 
the  evidence  that  said  guaranty  was  by  said  defendants,  or  by 
any  one  authorized  by  them  to  deliver  the  same,  actually  de- 
livered to  plaintiff,  and  that  plaintiff  accepted  and  acted  on 
the  same,  such  delivery,  acceptance  and  action  thereon  by  plain- 
tiff bind  the  defendants,  and  render  the  defendants  responsible 
in  the  action  for  all  overdrafts  upon  plaintiff  made  by  Goraon 
&  Co.,  at  the  date  of  and  since  the  date  of  said  delivery  of  said 
guaranty,  and  which  were  unpaid  at  the  date  of  the  commence- 
ment of  this  suit,  not  exceeding  $10,000. 

2.  The  jury  are  instructed  that  the  written  document  under 
seal,  offered  in  evidence  in  this  case,  implies  a  consideration, 
and  constitutes  an  unconditional  guaranty  of  whatever  over- 
draft, if  any,  not  exceeding  $10,000,  which  the  jury  may  find 
from  the  evidence  that  Gordon  &  Co.  actually  owed  the  plain- 
tiff at  the  date  of  the  bringing  of  this  suit ;  and  further,  if  you 
believe  from  the  evidence  that  an  account  was  stated  of  such 
overdraft  between  plaintiff  and  J.  Gordon  &  Co.:  then  the 
plaintiff  is  entitled  to  interest  on  the  amount  found  due  at  such 


DAVIS  V.  WELLS,  FARGO  &  CO.  217 

statement,  from  the  date  thereof,  at  the  rate  of  ten  per  cent  per 
annum. 

These  exceptions  form  the  basis  of  the  assignment  of  errors. 

The  charge  of  the  court  first  assigned  for  error,  and  its  re- 
fusal to  charge  upon  the  point  as  requested  by  the  plaintiffs  in 
error,  raises  the  question  whether  the  guaranty  becomes  opera- 
tive if  the  guarantor  be  not  within  a  reasonable  time  informed 
by  the  guarantee  of  his  acceptance  of  it  and  intention  to  act 
under  it. 

It  is  claimed  in  argument  that  this  has  been  settled  in  the 
negative  by  a  series  of  well  considered  judgments  of  this  court. 

It  becomes  necessary  to  inquire  precisely  what  has  been  thus 
settled,  and  what  rule  of  decision  is  applicable  to  the  facts  of 
the  present  case. 

In  Adams  v.  Jones,  12  Pet.  213,  Mr.  Justice  Story,  deliver- 
ing the  opinion  of  the  court,  said :  ' '  And  the  question  which,  un- 
der this  view,  is  presented,  is  whether,  upon  a  letter  of  guaranty, 
addressed  to  a  particular  person  or  to  persons  generally,  for  a 
future  credit  to  be  given  iO  the  party  in  whose  favor  the  guar- 
anty is  drawn,  notice  is  necessary  to  be  given  to  the  guarantor 
that  the  person  giving  the  credit  has  accepted  or  acted  upon 
the  guaranty  and  given  the  credit  on  the  faith  of  it ;  we  are  all 
of  the  opinion  that  it  is  necessary  and  this  is  not  now  an  open 
question  in  this  court,  after  the  decisions  which  have  been  made 
in  Russell  v.  Clark,  7  Cranch,  69 ;  Edmonston  v.  Drake,  5  Pet.  624 ; 
Douglass  v.  Reynolds,  7  Pet.  113 ;  Lee  v.  Dick,  10  Pet.  482 ;  and 
again  recognized  at  the  present  term  in  the  case  of  Reynolds 
v.  Douglass,  12  Pet.  497.  It  is  in  itself  a  reasonable  rule,  enabling 
the  guarantor  to  know  the  nature  and  extent  of  his  liability,  to 
exercise  due  vigilance  in  guarding  himself  against  losses  which 
might  otherwise  be  unknown  to  him,  and  to  avail  himself  of  the 
appropriate  means  in  law  and  equity  to  compel  the  other  parties 
to  discharge  him  from  further  responsibility.  The  reason  ap- 
plies with  still  greater  force  to  cases  of  a  general  letter  of  guar- 
anty, for  it  might  otherwise  be  impracticable  for  the  guarantor 
to  know  to  whom  and  under  what  circumstances  the  guaranty 
attached,  and  to  what  period  it  might  be  protracted.  Trans- 
actions between  the  other  parties  to  a  great  extent  might  from 
time  to  time  exist,  in  which  credits  might  be  given  and  payments 


218  THE    CONTRACT    DEFINED. 

might  bo  made,  the  existence  and  due  appropriation  of  which 
mighl  materially  affect  his  own  rights  and  security.  If,  there- 
fore, the  questions  were  entirely  new,  we  should  not  be  disposed 
to  hold  a  different  doctrine;  and  we  think  the  English  decisions 
are  in  entire  conformity  to  our  own." 

In  Reynolds  v.  Douglass,  12  Pet.  504,  decided  at  the  same 
term  and  referred  to  in  the  foregoing  extract,  Mr.  Justice  Mc- 
Lean stated  the  rule  to  be  "That,  to  entitle  the  plaintiffs  to  re- 
cover on  said  letter  of  credit,  they  must  prove  that  notice  had 
been  accepted  by  them,  to  the  defendants,  that  the  same  had  been 
accepted";  and  added,  "This  notice  need  not  be  proved  to 
have  been  given  in  writing  or  in  any  particular  form,  but  may 
be  inferred  by  the  jury  from  facts  and  circumstances  which 
shall  warrant  such  inference." 

There  seems  to  be  some  confusion  as  to  the  reason  and  founda- 
tion of  the  rule,  and,  consequently,  some  uncertainty  as  to  the 
circumstances  in  which  it  is  applicable.  In  some  instances  it 
has  been  treated  as  a  rule,  inhering  in  the  very  nature  and  defini- 
tion of  every  contract,  which  requires  the  assent  of  a  party  to 
whom  a  proposal  is  made  to  be  signified  to  the  party  making  it, 
in  order  to  constitute  a  binding  promise;  in  others  it  has  been 
considered  as  a  rule  springing  from  the  peculiar  nature  of  the 
contract  of  guaranty,  which  requires,  after  the  formation  of  the 
obligation  of  the  guarantor,  and  as  one  of  its  incidents,  that 
notice  should  be  given  of  the  intention  of  the  guarantee  to  act 
under  it  as  a  condition  of  the  promise  of  the  guarantor. 

The  former  is  the  sense  in  which  the  rule  is  to  be  understood 
as  having  been  applied  in  the  decisions  of  this  court.  This  ap^ 
pears  very  plainly,  not  only  from  a  particular  consideration  of 
the  cases  themselves,  but  was  formally  declared  to  be  so  by  Mr. 
Justice  Nelson,  speaking  for  the  court  in  delivering  its  opinion 
in  the  case  of  Manufacturing  Co.  v.  Welch,  10  How.  475,  where 
he  uses  this  language : 

"He  (the  guarantor)  has  already  had  notice  of  the  accept- 
ance of  the  guaranty  and  of  the  intention  of  the  party  to  act 
under  it.  The  rule  requiring  this  notice  writhin  a  reasonable 
time  after  the  acceptance  is  absolute  and  imperative  in  this 
court,  according  to  all  the  cases;  it  is  deemed  essential  to  an 
inception  of  the  contract;  he  is,  therefore,  advised  of  his  accru- 


DAVIS  v.  WELLS,  FARGO  &  CO.  219 

ing  liabilities  upon  the  guaranty,  and  may  very  well  anticipate 
or  be  charged  with  notice  of  an  amount  of  indebtedness  to 
the  extent  of  the  credit  pledged." 

And  in  Wilds  v.  Savage,  1  Story,  22,  Mr.  Justice  Story,  who 
had  delivered  the  opinion  in  the  case  of  Douglass  v.  Reynolds, 
7  Pet.  113,  after  stating  the  rule  requiring  notice  by  the  guar- 
antee of  his  acceptance,  said:  "This  doctrine,  however,  is  in- 
applicable to  the  circumstances  of  the  present  case;  for  the 
agreement  to  accept  was  contemporaneous  with  the  guaranty, 
and,  indeed,  constituted  the  consideration  and  basis  thereof." 

The  agreement  to  accept  is  a  transaction  between  the  guar- 
antee and  guarantor,  and  completes  that  mutual  assent  neces- 
sary to  a  valid  contract  between  the  parties.     It  was,  in  the 
case  cited,  the  consideration  for  the  promise  of  the  guarantor. 
And  wherever  a  sufficient    consideration    of    any    description 
passes  directly  between  them,  it  operates  in  the  same  manner 
and  with  like  effect.    It  establishes  a  privity  between  them  and 
creates  an  obligation.     The  rule  in  question  proceeds  upon  the 
ground  that  the  case  in  which  it  applies  is  an  offer  or  proposal 
on  the  part  of  the  guarantor,  which  does  not  become  effective 
and  binding  as  an  obligation  until  accepted  by  the  party  to 
whom  it  is  made;  that  until  then  it  is  inchoate  and  incomplete 
and  may  be  withdrawn  by  the  proposer.     Frequently  the  only 
consideration  contemplated  is,  that  the  guarantee  shall  extend 
the  credit  and  make  the  advances  to  the  third  person,  for  whose 
performance  of  his  obligation  on  that  account,  the  guarantor 
undertakes.     But  a  guaranty  may  as  well  be  for  an  existing 
debt,  or  it  may  be  supported  by  some  consideration  distinct  from 
the  advance  to  the  principal  debtor,  passing  directly  from  the 
guarantee  to  the  guarantor.    In  the  case  of  the  guaranty  of  an 
existing   debt,   such    a   consideration   is   necessary   to   support 
the  undertaking  as  a  binding  obligation.    In  both  these  cases,  no 
notice  of  assent,  other  than  the  performance  of  the  considera- 
tion, is  necessary  to  perfect  the  agreement;  for,  as  Prof.  Lang- 
dell  has  pointed  out  in  his  Summary  of  the  Law  of  Contracts 
(Langdell  Cas.  on  Cont.,  987),  "Though  the  acceptance  of  an 
offer  and  the  performance  of  the  consideration  are  different 
things,  and  though  the  former  does  not  imply  the  latter,  yet  the 
latter  does  necessarily  imply  the  former;  and  as  the  want  of 


220  THE    CONTRACT    DEFINED. 

either  is  fatal  to  the  promise,  the  question  whether  an  offer  has 
been  accepted  can  never,  in  strictness,  become  material  in  those 
cases  in  which  a  consideration  is  necessary;  and  for  all  practical 
purposes  it  may  be  said  that  the  offer  is  accepted  in  such  cases 
by  '-living  or  performing  the  consideration." 

If  the  guaranty  is  made  at  the  request  of  the  guarantee,  it 
then  becomes  the  answer  of  the  guarantor  to  a  proposal  made  to 
him,  and  its  delivery  to  or  for  the  use  of  the  guarantee  completes 
the  communication  between  them  and  constitutes  a  contract. 
The  same  result  follows,  as  declared  in  Wilds  v.  Savage,  supra, 
where  the  agreement  to  accept  is  contemporaneous  with  the 
guaranty,  and  constitutes  its  consideration  and  basis.  It  must 
be  so  wherever  there  is  a  valuable  consideration,  other  than  the 
expected  advances  to  be  made  to  the  principal  debtor,  which 
passes  at  the  time  the  undertaking  is  given  from  the  guarantee 
to  the  guarantor,  and  equally  so  where  the  instrument  is  in  the 
form  of  a  bilateral  contract,  in  which  the  guarantee  binds  him- 
self to  make  the  contemplated  advances,  or  which  otherwise 
creates,  by  its  recitals,  a  privity  between  the  guarantee  and  the 
guarantor.  For  in  each  of  these  cases,  the  mutual  assent  of  the 
parties  to  the  obligation  is  either  expressed  or  necessarily  im- 
plied. 

The  view  we  have  taken  of  the  rule  under  consideration,  as  re- 
quiring notice  of  acceptance  and  of  the  intention  to  act  under 
the  guaranty,  only  when  the  legal  effect  of  the  instrument  is 
that  of  an  offer  or  proposal,  and  for  the  purpose  of  completing 
its  obligation  as  a  contract,  is  the  one  urged  upon  us  by  the 
learned  counsel  for  the  plaintiff  in  error,  who  says,  in  his  print- 
ed brief :  ' '  For  the  ground  of  the  doctrine  is  not  that  the  opera- 
tion of  the  writing  is  conditional  upon  notice,  but  it  is,  that 
until  it  is  accepted  and  notice  of  its  acceptance  given  to  the 
guarantor,  there  is  no  contract  between  the  guarantor  and  the 
guarantee;  the  reason  being  that  the  writing  is  merely  an  offer 
to  guaranty  the  debt  of  another:  and  it  must  be  accepted  and 
notice  thereof  given  to  the  party  offering  himself  as  security 
before  the  minds  meet  and  he  becomes  bound.  Until  the  notice 
is  given,  there  is  a  want  of  mutuality;  the  case  is  not  that  of  an 
obligation  on  condition,  but  of  an  offer  to  become  bound  not 


DAVIS  v.  WELLS,  FARGO  &  CO.  221 

accepted;  that  is,  there  is  not  a  conditional  contract,  but  no 
contract  whatever." 

It  is  thence  argued  that  the  words  in  the  instrument  which 
is  the  foundation  of  the  present  action — "we  hereby  guarantee 
unto  them,  the  said  Wells,  Fargo  &  Co.;  unconditionally,  at  all 
times,  etc." — cannot  have  the  effect  of  waiving  the  notice  of 
acceptance,  because  they  can  have  no  effect  at  all  except  as  the 
words  of  a  contract,  and  there  can  be  no  contract  without  notice 
of  acceptance.  And  on  the  supposition  that  the  terms  of  the  in- 
strument constitute  a  mere  offer  to  guaranty  the  debts  of  Gor- 
don &  Co.,  we  accept  the  conclusion  as  entirely  just. 

But  we  are  unable  to  agree  to  that  supposition.  We  think 
that  the  instrument  sued  on  is  not  a  mere  unaccepted  proposal. 
It  carries  on  its  face  conclusive  evidence  that  it  has  been  ac- 
cepted by  Wells,  Fargo  &  Co.,  and  that  it  was  understood  and 
intended  to  be,  on  delivery  to  them,  as  it  took  place,  a  complete 
and  perfect  obligation  of  guaranty.  That  evidence  we  find  in 
the  words — "for  and  in  consideration  of  one  dollar,  to  us  paid 
by  Wells,  Fargo  &  Co.,  the  receipt  of  which  is  hereby  acknowl- 
edged, we  hereby  guarantee, ' '  etc.  How  can  that  recital  be  true, 
unless  the  covenant  of  guaranty  had  been  made  with  the  as- 
sent of  Wells,  Fargo  &  Co.,  communicated  to  the  guarantors? 
Wells,  Fargo  &  Co.  had  not  only  assented  to  it,  but  had  paid 
value  for  it,  and  that  into  the  very  hands  of  the  guarantors,  as 
they  by  the  instrument  itself  acknowledge. 

It  is  not  material  that  the  expressed  consideration  is  nominal. 
That  point  was  made,  as  to  a  guarantee,  substantially  the  same 
as  this,  in  the  case  of  Lawrence  v.  McAlmont,  2  How.  452,  and 
was  overruled.    Mr.  Justice  Story  said : 

"The  guarantor  acknowledged  the  receipt  of  the  one  dollar 
and  is  now  estopped  to  deny  it.  If  she  has  not  received  it, 
she  would  now  be  entitled  to  recover  it.  A  valuable  considera- 
tion, however  small  or  nominal,  if  given  or  stipulated  for  in 
good  faith,  is,  in  the  absence  of  fraud,  sufficient  to  support  an 
action  on  any  parol  contract ;  and  this  is  equally  true  as  to  con- 
tracts of  guarantee  as  to  other  contracts.  A  stipulation  in  con- 
sideration of  one  dollar  is  just  as  effectual  and  valuable  a  con- 
sideration as  a  larger  sum  stipulated  for  or  paid.  The  very  point 
arose  in  Dutchman  v.  Tooth,  5  Bing.   (N.  C),  577,  where  the 


222  THE    CONTRACT    DEFINED. 

guarantor  save  a  guaranty  for  the  payment  of  the  proceeds  of 
the  goods  the  guarantee  had  consigned  to  his  brother,  and  also 
all  future  shipments  the  guarantee  might  make  in  consideration 
of  two  shillings  and  sixpence,  paid  him,  the  guarantor.  And  the 
court  held  the  guaranty  good,  and  the  consideration  sufficient." 
It  is  worthy  of  note  that  in  the  case  from  which  this  extract 
is  taken  the  guaranty  was  substantially  the  same  as  that  in  the 
present  case,  and  that  no  question  was  made  as  to  a  notice  of 
acceptance.  It  seems  to  have  been  treated  as  a  complete  con- 
tract by  force  of  its  terms. 

It  does  not  affect  the  conclusion,  based  on  these  views,  that 
the  present  guaranty  was  for  future  advances  as  well  as  an  ex- 
isting debt.  It  cannot,  therefore,  be  treated  as  if  it  were  an 
engagement,  in  which  the  only  consideration  was  the  future 
credit  solicited  and  expected.  The  recital  of  the  consideration 
paid  by  the  guarantee  to  the  guarantor  shows  a  completed  con- 
tract, based  upon  a  mutual  assent  of  the  parties ;  and  if  it  is  a 
contract  at  all,  it  is  one  for  all  the  purposes  expressed  in  it.  It 
is  an  entirety  and  cannot  be  separated  into  distinct  parts.  The 
covenant  is  single  and  cannot  be  subjected  in  its  interpretation 
to  the  operation  of  two  diverse  rules. 

Of  course  the  instrument  takes  effect  only  upon  delivery.  But 
in  this  case  no  question  was  or  could  be  made  upon  that.  It  was 
admitted  that  it  was  delivered  to  Gordon  for  delivery  to  the 
plaintiffs  below,  and  that  Gordon  delivered  it  to  them. 

But  if  we  should  consider  that,  notwithstanding  the  com- 
pleteness of  the  contract  as  such,  the  guaranty  of  future  ad- 
vances was  subject  to  a  condition  implied  by  law  that  notice 
should  be  given  to  the  guarantor  that  the  guarantee  either  would 
or  had  acted  upon  the  faith  of  it,  we  are  led  to  inquire,  what 
effect  is  to  be  given  to  the  use  of  the  words  which  declare  that 
the  guarantors  thereby  "Guarantee  unto  them,  the  said  Wells, 
Fargo  &  Co.,  unconditionally,  at  all  times,  any  indebtedness  of 
Gordon  &  Co.,  etc.,  to  the  extent  and  not  exceeding  the  sum  of 
$10,000,  for  any  overdrafts  now  made,  or  that  hereafter  may  be 
made,  at  the  bank  of  said  Wells,  Fargo  &  Co. ' ' 

Upon  the  supposition  now  made,  the  notice  alleged  to  be 
necessary  arises  from  the  nature  of  such  a  guaranty.  It  is  not, 
and  cannot  be,  claimed  that  such  a  condition  is  so  essential  to  the 


DAVIS  v.  WELLS,  FARGO  &  CO.  223 

obligation  that  it  cannot  be  waived.  We  do  not  see,  therefore, 
what  less  effect  can  be  ascribed  to  the  words  quoted  than  that  all 
conditions  that  otherwise  would  qualify  the  obligation  are  by 
agreement  expunged  from  it  and  made  void.  The  obligation  be- 
comes thereby  absolute  and  unqualified ;  free  from  all  conditions 
whatever.  This  is  the  natural,  obvious  and  ordinary  meaning  of 
the  terms  employed,  and  we  cannot  doubt  that  they  express  the 
real  meaning  of  the  parties.  It  was  their  manifest  intention  to 
make  it  unambiguous  that  Wells,  Fargo  &  Co.,  for  any  indebted- 
ness that  might  arise  to  them  in  consequence  of  overdrafts  by 
Gordon  &  Co.,  might  securely  look  to  the  guarantors  without  the 
performance  on  their  part  of  any  conditions  precedent  thereto 
whatever. 

It  has  always  been  held  in  this  court  that,  notwithstanding 
the  contract  of  guaranty  is  the  obligation  of  a  surety,  it  is  to  be 
construed  as  a  mercantile  instrument  in  furtherance  of  its  spirit 
and  liberally  to  promote  the  use  and  convenience  of  commercial 
intercourse. 

This  view  applies  with  equal  force  to  the  exceptions  to  the 
other  charges  and  refusals  to  charge  of  the  court  below.  These 
exceptions  are  based  on  the  propositions: 

1.  That  if  Wells,  Fargo  &  Co.  neglected  to  notify  the  defend- 
ants below  of  the  amount  of  the  overdraft  within  a  reasonable 
time  after  closing  the  account  of  Gordon  &  Co. ;  and 

2.  That  if  they  failed  within  a  reasonable  time  after  demand 
of  payment  made  upon  Gordon  &  Co.,  to  notify  the  defendants  of 
the  default,  the  plaintiffs  could  not  recover  upon  the  guaranty. 

For,  if  the  necessity  in  either  or  both  of  these  contingencies 
existed,  to  give  the  notice  specified,  it  was  because  the  duty  to  do 
so  was,  by  construction  of  law,  made  conditions  of  the  contract. 

But  by  its  terms,  as  we  have  shown,  the  contract  was  made 
absolute,  and  all  conditions  waived. 

It  is  undoubtedly  true,  that  if  the  guarantee  fails  to  give  rea- 
sonable notice  to  the  guarantor  of  the  default  of  the  principal 
debtor,  and  loss  or  damage  thereby  ensues  to  the  guarantor,  to 
that  extent  the  latter  is  discharged;  but  both  the  laches  of  the 
plaintiff  and  the  loss  of  the  defendant  must  concur  to  constitute 
a  defense. 

If  any  intermediate  notice,  at  the  expiration  of  the  credit,  of 


224  THE    CONTRACT    DEFINED. 

the  extent  of  the  liability  incurred  is  requisite,  the  same  rule 
applies.  Such  was  the  expressed  decision  of  this  courl  in  the 
of  Manufacturing  Co.  v.  Welch  [supra).  An  unreasonable 
delay  in  giving  aotice,  or  a  failure  to  give  it  altogether,  is  not 
a  bar,  of  itself. 

There  was  a  question  made  al  the  trial,  as  to  the  meaning  of 
the  word  "overdrafts,"  as  used  in  the  guaranty;  and  it  was  con- 
tended that  it  would  not  include  the  debil  balance  of  accounts 
charged  to  Gordon  &  Murray,  and  assumed  by  Gordon  &  Co.,  as 
their  successors,  before  the  guaranty  was  made,  nor  charm's  of 
interest  accrued  upon  the  halances  of  (iordon  &  Co.'s  account, 
which  were  entered  to  the  debit  of  the  account.  The  reason 
alleged  was,  that  no  forma]  checks  were  given  lot-  these  amounts. 
The  poini  was  nol  urged  in  argumenl  at  the  bar,  and  was  very 
properly  abandoned.  The  charges  were  Legitimate  and  correct, 
and  the  balance  of  the  account  to  the  debit  of  Gordon  &  Co.  was 
the  overdraft  for  which  they  were  liable.  There  could  be  no 
doubt  that  it  was  embraced  in  thf  guaranty. 

We  find  no  error  in  the  record,  and  tin   judgmt  nt  is  a/Jirmed. 


UNION  BANK  OF  LOUISIANA  v.  COSTER'S  EXECUTORS. 
.v  A.   V.  203.     1850. 

On  the  29th  of  May,  1841,  Eeckscher  &  Coster,  merchants 
of  the  city  of  New  York,  executed  and  sent  to  Kohn,  Daron  & 
Co.,  merchants  in  New  Orleans,  a,  letter  of  credit  as  follows: 

"New  York,  29  May,  1841. 
"Sir:  We  hereby  agree  to  accept  and  pay  at  maturity  any 
draft  or  drafts  on  us  at  sixty  days'  sight,  issued  by  Messrs. 
Kohn,  Daron  &  Co.  of  your  city,  to  the  extent  of  twenty-five 
thousand  dollars,  and  negotiated  through  your  bank.  We  are 
respectfully,  sir,  your  obd't  serv'ts, 

" Hecksciier  &  Coster." 

At  the  foot  of  the  letter  of  credit  was  a  guaranty  executed  at 
the  same  time  by  John  G.  Coster,  as  follows: 


UNION  BANK  v.   COSTER'S   EXECUTORS.  225 

"I  hereby  guarantee  the  due  acceptance  and  payment  of  any 
draft  issued  in  pursuance  of  the  above  credit. 

"JoiinG.  Coster." 

On  the  faith  of  the  above  letter  of  credit  and  guaranty,  the 
Union  Bank  of  Louisiana,  in  January,  1842,  purchased  two 
drafts  drawn  by  Kohn,  Daron  &  Co.  on  Heckscher  &  Coster, 
amounting  to  about  $9,000,  which  were  accepted  and  paid  by 
the  latter  according  to  their  agreement.  On  the  14th  of  Febru- 
ary, 1842,  the  bank,  under  the  same  letter  of  credit,  purchased 
another  draft  for  $4,000,  at  sixty  days'  sight,  drawn  by  and 
upon  the  same  parties ;  and  on  the  26th  of  that  month  this  draft 
was  presented  to  Heckscher  &  Coster,  in  New  York,  for  accept- 
ance, which  they  refused.  On  the  9th  of  April,  1842,  the 
attorney  for  the  Union  Bank  gave  notice  to  John  G.  Coster  that 
he  had  received  the  draft  for  collection?  and  on  the  2d  of  May, 
1842,  formal  notice  of  the  protest  of  the  draft  for  non-payment 
was  served  on  Mr.  Coster.  In  August,  1844,  John  G.  Coster 
died,  and  the  Union  Bank  subsequently  brought  this  suit  in  the 
superior  court  of  the  city  of  New  York,  against  his  executors, 
Tipon  the  guaranty  above  set  forth,  for  the  purpose  of  recovering 
the  amount  of  the  draft.  On  the  trial,  in  addition  to  the  facts 
already  stated,  it  appeared  that  prior  to  any  of  the  above  men- 
tioned transactions  with  the  Union  Bank,  the  said  letter  of 
credit  and  guaranty  had  been  held  by  the  City  Bank  of  New 
Orleans,  which,  upon  the  faith  thereof,  in  December,  1841,  had 
purchased  a  draft  of  $10,000  drawn  by  Kohn,  Daron  &  Co.  upon 
Heckscher  &  Coster.  The  letter  and  guaranty  were  not  ad- 
dressed to  any  particular  person  or  bank. 

Pratt,  J.,  delivered  the  opinion  of  the  court.  Contracts  of 
guaranty  differ  from  other  ordinary  simple  contracts  only  in  the 
nature  of  the  evidence  required  to  establish  their  validity.  The 
statute  requires  every  special  promise  to  answer  for  the  debt, 
default  or  miscarriage  of  another,  to  be  in  writing  subscribed 
by  the  party  to  be  charged  thereby,  and  expressing  therein  the 
consideration;  and  no  parol  evidence  will  be  allowed  as  a  sub- 
stitute for  these  requirements  of  the  statute.  But  in  other  re- 
spects the  same  rules  of  construction  and  evidence  apply  to 
contracts  of  this  character  which  apply  to  other  ordinary  con- 
tracts.    Hence  the  consideration  which  will  support  a  contract 


226  THE    CONTRACT    DEFINED. 

of  this  character,  as  in  other  eases,  may  consist  in  some  benefit 
to  the  promisor,  or  some  other  person  at  his  request,  or  some 
trouble  or  detrimenl  to  the  promisee.  (20  Wend.  184,  201; 
Theobald  on  Pr.  &  Surety,  3,  4;  2  II.  Bl.  312.)  Nor  is  any 
particular  form  of  words  necessary  to  be  used  for  expressing  the 
consideration;  but  it  is  enough  if  from  the  whole  instrument 
the  consideration  expressly  or  by  necessary  inference  appears; 
so  that  it  be  clear  that  such  and  no  other  was  the  consideration 
upon  which  I  he  promise  was  made.  (24  Wend.  35;  21  id.  G28 ; 
4  Hill.  200;  8  Ad.  &  HI.  846;  5  Barn.  &  Ad.  1109.)  And  the 
rule  allowing  two  or  more  instruments  given  at  the  same  time 
and  relating  to  the  same  subject  matter  to  be  construed  to- 
gether ns  one  instrument,  applies  also  to  this  class  of  contracts; 
so  that  when  a  guaranty  is  given  at  the  same  time  with  the 
principal  contract  ami  forms  a  part  of  the  entire  transaction, 
if  the  consideration  be  stated  in  the  principal  contract,  though 
none  be  stated  in  the  guaranty,  it  will  suffice.  8  John.  35;  9 
Wend.  218;  18  id.  114.  So  also  as  in  other  cases,  parol  evidence 
of  the  circumstances  under  which  the  contract  was  made  may 
he  given,  to  aid  the  court  in  giving  a  true  construction  to  am- 
biguous  terms  therein,  or  to  show  that  separate  contracts  relate 
to  the  same  subject  matter. 

It  should  also  be  observed  here,  that  our  statute  in  terms  only 
requires  the  contract  to  express  therein  what  it  had  been  well 
settled  the  statute  of  Elizabeth  required  it  to  contain,  and  the 
same  rules  of  construction  should  therefore  be  applied  in  cases 
under  both  statutes.    24  Wend.  35. 

With  these  observations  in  relation  to  the  law  governing 
cases  of  this  kind,  we  come  to  the  consideration  of  the  contract 
in  question. 

The  letter  of  credit  of  Heckscher  &  Coster  is  an  original  un- 
dertaking on  the  face  of  it  to  accept  any  drafts  to  be  drawn 
upon  them  at  sixty  days  by  Kohn,  Daron  &  Co.  to  the  extent  of 
$25,000,  and  negotiated  by  the  bank  to  whom  it  is  addressed. 
The  consideration  of  their  undertaking  appears  very  plainly 
from  the  instrument.  It  is  an  open  proposition  to  the  bank  to 
which  it  is  addressed,  that  if  it  will  purchase  the  drafts  drawn 
by  Kohn,  Daron  &  Co.  they  will  accept  and  pay  the  same.  As 
soon  therefore  as  the  bank  complied  with  the  proposition  the 


UNION  BANK  v.   COSTER'S   EXECUTORS.  227 

contract  was  closed,  and  the  rights  and  liabilities  of  the  parties 
became  fixed.  Upon  this  part  of  the  contract  there  can  be  no 
question  that  a  sufficient  consideration  appears  upon  the  face 
of  the  contract  to  uphold  it.  But  it  requires  no  greater  or  dif- 
ferent consideration  to  support  a  guaranty  than  to  support  an 
original  promise.  The  only  difference  in  the  two  cases  consists 
in  the  former  requiring  the  consideration  to  appear  upon  the 
contract  itself,  whereas  the  consideration  to  support  the  latter 
may  be  proved  by  parol.  The  question  therefore  in  this  case  is 
whether  the  consideration  of  the  undertaking  of  the  defendants' 
testator  appears  upon  the  instrument  itself,  or  rather  whether 
the  two  instruments  may  be  read  together  so  that  the  same  con- 
sideration shall  support  both. 

The  guaranty  is  without  date  and  at  the  foot  of  the  letter  of 
credit.  Independent  of  the  parol  testimony  it  should  be  deemed 
to  have  been  made  at  the  same  time.  It  is  addressed  to  the 
same  person  and  relates  to  the  same  subject  matter.  It  should 
therefore,  within  every  rule  of  construction,  be  deemed  part  of 
the  same  transaction,  and  the  two  instruments  should  be  read 
together  as  one  contract.  The  two  would  read  thus:  "In  con- 
sideration that  you,  the  Union  Bank  of  Louisiana,  will  purchase 
any  draft  or  drafts  to  be  issued  by  Kohn,  Daron  &  Co.  upon 
Heckscher  &  Coster,  at  sixty  days,  not  exceeding  $25,000,  we 
the  said  Heckscher  &  Coster  will  accept  and  pay  the  same ;  and 
I  the  said  John  G.  Coster  agree  that  Heckscher  &  Coster  shall 
accept  and  pay  the  same."  Now  it  seems  to  me  clear  that  such 
is  the  fair  reading  of  the  two  contracts  taken  together;  and 
although  the  contract  of  John  G.  Coster  may  be  deemed  collater- 
al, yet  had  the  two  been  drawn  in  the  above  form  no  question 
could  have  been  raised  upon  the  statute  of  frauds.  But  what 
may  be  fairly  inferred  from  the  terms  of  a  contract  should  be 
considered,  for  the  purpose  of  giving  it  effect,  as  contained  in 
it;  and  this  rule  applies  as  well  to  collateral  as  to  original  un- 
dertakings.   5  Hill,  147. 

There  is  a  wide  difference  between  the  guaranty  of  an  exist- 
ing debt  and  the  guaranty  of  a  debt  to  be  contracted  upon  the 
credit  of  the  guaranty.  It  is  the  difference  between  a  past 
and  future  consideration.  A  past  consideration,  unless  done  at 
the  request  of  the  promisor,  is  not  sufficient  to  support  any 


228  THE    CONTRACT    DEFINED. 

promise.  But  a  promise  to  do  an  act  in  consideration  of  some 
act  to  be  done  by  the  promisee  implies  a  request,  and  a  com- 
pliance on  the  part  of  the  latter  closes  the  contract  and  makes 
it  binding-.  And  although  it  may  be  necessary  from  the  nature 
of  the  case  to  prove  performance  by  parol,  yet  such  evidence 
is  no  violation  of  the  statute  requiring  the  consideration  to  be 
in  writing.  The  consideration  of  the  promise  is  expressed,  and 
the  parol  evidence  is  only  used  to  show,  not  what  the  considera- 
tion is,  but  that  the  act  which  constitutes  that  consideration  has 
been  performed.  Any  other  rule  would  require  every  person  to 
whom  a  letter  of  credit  is  directed  to  accept  the  same,  in  writing 
before  the  drawer  would  be  bound.  For  instance,  a  letter  drawn 
in  the  country  and  addressed  to  a  merchant  in  the  city,  guaran- 
teeing  the  responsibility  of  the  person  for  whose  benefit  the 
same  was  drawn  for  a  given  bill  of  goods  to  be  sold  to  him, 
would  require  a  written  acceptance  by  the  city  merchant  be- 
fore it  would  be  binding  upon  the  drawer.  No  such  strict  rule 
can  be  found  supported  by  any  adjudication.  I  am  therefore 
satisfied  that  the  consideration  of  the  guaranty  in  the  case  at 
bar  sufficiently  appears  in  the  contract,  and  that  the  same  was 
valid  and  binding  upon  the  defendants'  testator.  I  have  not 
been  able  to  find  a  case  in  our  own  or  the  English  courts  which 
would  conflict  with  the  doctrine  above  advanced;  but  on  the 
contrary,  the  books  are  full  of  cases  similar  in  their  circum- 
stances to  this  case,  where  the  guaranty  has  been  sustained.  8 
John.  35 ;  11  id.  221 ;  10  Wend.  218 ;  S.  C.  in  error,  13  id.  114 ; 
12  id.  218;  24  id.  35;  4  Hill,  200;  4  Denio,  559;  1  Ad.  &  E.  57; 
5  Bligh's  N.  R.  1;  7  Mees.  &  Wels.  410;  9  East,  348;  1  Camp. 
242;  3  Brod.  &  Bing.  211 ;  4  C.  &  P.  N.  P.  59 ;  8  Dowl.  &  Ryl.  62. 
The  next  question  raised  in  the  case  is  as  to  notice  of  ac- 
ceptance. We  must  hold  the  law  to  be  settled  in  this  state  that 
where  the  guaranty  is  absolute  no  notice  of  acceptance  is  neces- 
sary. Judge  Cowen  in  Douglass  v.  Howland  (24  Wend.  35), 
and  Judge  Bronson,  in  Smith  v.  Dann  (6  Hill,  543),  examined 
the  cases  at  length  upon  this  question,  and  they  showed  con- 
clusively that  by  the  common  law  no  notice  of  the  acceptance 
of  any  contract  was  necessary  to  make  it  binding,  unless  it  be 
made  a  condition  of  the  contract  itself,  and  that  contracts  of 
guaranty  do  not  differ  in  that  respect  from  other  contracts.    In 


UNION  BANK  v.   COSTER'S  EXECUTORS.  229 

this  case  the  only  condition  of  Coster's  undertaking  was  that 
the  bank  should  purchase  the  drafts  to  be  issued  by  Kohn,  Daron 
&  Co.,  and  upon  complying  with  that  condition  the  rights  of  the 
parties  became  fixed,  and  the  contract  binding.  There  is  noth- 
ing in  the  contract  from  which  we  can  infer  that  it  was  the 
intention  of  the  parties  that  notice  should  be  given  in  order  to 
fix  the  guarantor.  No  more  is  required  to  make  the  guarantor 
liable  than  to  make  Heckscher  &  Coster,  and  the  only  notice  to 
them  necessary  was  the  presentment  of  the  drafts  for  their  ac- 
ceptance within  a  reasonable  time.  Allen  v.  Rightmere,  20 
John.  365;  Clark  v.  Burdett,  2  Hall,  197;  Cro.  Jae.  287,  685;  2 
Salk.  457;  Vin.  Ab.  Notice,  A.  3;  Com.  Dig.  Plead.  C.  75;  2 
Chitty,  403. 

As  to  notice  of  non-acceptance  and  non-payment  of  the  bills 
by  the  drawees,  that  can  only  involve  the  subject  of  laches  on 
the  part  of  the  holders  of  the  drafts,  and  all  the  cases,  both  in 
England  and  in  this  country,  concur  in  holding  that  this  de- 
fense can  only  be  set  up  to  an  action  against  the  surety  in  cases 
where  he  has  suffered  damage  thereby,  and  then  only  to  the 
extent  of  such  damage.  7  Peters,  117 ;  12  id.  497 ;  1  Mason,  323, 
368 ;  1  Story,  22 ;  13  Conn.  28 ;  5  Man.  &  Gran.  559 ;  13  Mees.  & 
Wels.  452;  3  Kent's  Com.  122.  If,  therefore,  .it  were  necessary 
in  this  case  to  give  any  notice,  no  evidence  has  been  given  show- 
ing that  the  defendants,  or  the  guarantor,  suffered  any  loss  in 
consequence  of  the  want  of  such  notice. 

The  only  remaining  question,  therefore,  worthy  of  considera- 
tion in  this  case,  arises  out  of  the  fact  that  another  bank  had 
previously  purchased  drafts  drawn  in  pursuance  of  the  letter 
of  credit  and  guaranty.  It  is  claimed  that  by  such  purchase 
the  contract  became  a  fixed  and  binding  contract  between  such 
bank  and  the  promisor,  and  thereby  lost  its  negotiable  char- 
acter, and  became  located  so  that  no  other  person  or  bank  could 
purchase  drafts  upon  the  credit  of  it. 

The  guaranty,  in  this  case,  was  manifestly  intended  to  accom- 
pany the  letter  of  credit,  and  is  subject,  in  this  respect,  to  the 
same  construction  If,  therefore,  it  was  competent  for  Kohn, 
Daron  &  Co.  to  draw  several  drafts  not  exceeding  the  limit  in 
the  bill  of  credit  specified,  and  to  negotiate  them  at  different 
banks,  and  Heckscher  &  Coster  would  be  bound  by  their  letter 


230  THE    CONTRACT    DEFINED. 

of  credit  to  accept  and  pay  them,  the  guarantor  would  also  he 
liable  to  the  same  extent.  As  a  general  rule  the  surety  is  liable 
to  the  same  extent  as  the  principal,  unless  he  expressly  limits 
his  liability.  (Theobold  on  Prin.  and  Surety,  46.)  It  therefore 
only  becomes  necessary  to  examine  the  letter  of  credit,  and 
ascertain  whether  it  was  intended  to  be  limited  to  one  particular 
bank,  or  is  a  general  letter  of  credit  to  any  and  all  persons  who 
may  advance  money  upon  it.  It  is  somewhat  singular  that  we 
iin.l  so  few  adjudications  in  our  courts  upon  a  class  of  com- 
mercial  instruments  which  enter  so  largely  into  the  commerce 
and  business  of  this  country,  and  of  the  world. 

In  England  it  seems  to  be  at  this  time  questionable  whether  a 
party  who  advances  money  upon  a  general  letter  of  credit  can 
sustain  an  action  upon  it.  Russell  et  al.  v.  Wiggins,  2  Story, 
214;  Bank  of  Ireland  v.  Archer,  2  Mees.  &  Welsby,  383.  The 
reason  assigned  is  that  there  is  no  privity  of  contract  between 
them.  It  is  there  assumed  that  it  is  only  a  contract  between  the 
drawer  of  the  letter  and  the  person  for  whose  benefit  it  is  drawn. 
But  in  this  country  the  contrary  doctrine  is  well  settled.  Letters 
of  credit  are  of  two  kinds,  general  and  special.  A  special  letter 
of  credit  is  addressed  to  a  particular  individual  by  name,  and 
is  confined  to  him,  and  gives  no  other  person  a  right  to  act  upon 
it.  A  general  letter,  on  the  contrary,  is  addressed  to  any  and 
every  person,  and  therefore  gives  any  person  to  whom  it  may  be 
shown  authority  to  advance  upon  its  credit.  A  privity  of  con- 
tract springs  up  between  him  and  the  drawer  of  the  letter,  and 
it  becomes  in  legal  effect  the  same  as  if  addressed  to  him  by 
name.  Russell  v.  Wiggins,  2  Story's  Rep.  214;  12  Mass.  154; 
2  Metealf,  381;  12  Wend.  393;  12  Peters,  207;  Burkhead  v. 
Brown,  5  Hill,  641;  Story  on  Bills;  See  Beames'  Lex.  Mer.  444. 

But  these  general  letters  of  credit  may  be  subdivided  into  two 
kinds,  those  that  contemplate  a  single  transaction,  and  those 
that  contemplate  an  open  and  continued  credit,  embracing  sev- 
eral transactions.  In  the  latter  case  they  are  not  generally  con- 
fined to  transactions  with  a  single  individual,  but  if  the  nature 
of  the  business  which  the  letter  of  credit  was  intended  to  facili- 
tate, requires  it,  different  individuals  are  authorized  to  make 
advances  upon  it,  and  it  then  becomes  a  several  contract  with 
each  individual  to  the  amount  advanced  by  him.    Thus  a  general 


UNION  BANK  v.  COSTER'S  EXECUTORS.  231 

letter  of  credit  may  be  issued  to  a  person  to  enable  him  to  pur- 
chase goods  in  the  city  of  New  York,  for  a  country  store.  The 
very  nature  of  the  business  requires  him  to  deal  with  different 
individuals  and  houses  in  order  to  obtain  the  necessary  assort- 
ment. It  has  never,  as  I  am  aware,  been  questioned  that  the 
guarantor  might  be  bound  to  several  persons  who  should  furnish 
goods  upon  the  credit  of  the  letter. 

So  letters  are  issued  by  commission  houses  in  the  city,  to 
enable  persons  to  purchase  produce  in  the  western  states.  The 
money  as  obtained  from  the  local  banks  in  those  states  by  drafts 
drawn  upon  those  houses,  and  upon  the  faith  of  the  letters  of 
credit.  It  may  often  happen  that  a  single  bank  can  not  furnish 
the  requisite  amount,  or  it  may  be  necessary  to  use  money  in 
different  and  distant  localities.  I  am  not  aware  of  any  question 
ever  having  been  raised  as  to  the  authority  of  different  banks 
to  act  upon  the  same  letter  of  credit.  It  is  absolutely  neces- 
sary that  such  should  be  the  effect  of  them  in  order  to  facilitate 
the  commerce  of  the  country,  and  to  carry  out  the  object  of  the 
parties  in  issuing  the  letters  of  credit.  Burkhead  v.  Brown,  5 
Hill,  641;  2  Story's  Rep.  214. 

The  letter  of  credit  in  this  case  was  evidently  intended  to  be 
general ;  it  did  not  contemplate  a  single  transaction,  or  draft  for 
the  whole  amount,  but  several  drafts  limited  in  the  aggregate 
to  twenty-five  thousand  dollars.  Although  the  address  "sir," 
and  "your  bank,"  is  in  the  singular  number,  yet  I  think  it  was 
intended  to  be  used  in  a  distributive  sense,  and  apply  to  any 
bank  or  banks  who  should  purchase  the  drafts.  I  can  see  no 
object  which  the  drawers  should  have  for  limiting  the  party  for 
whose  benefit  the  letter  was  issued  to  a  single  bank.  It  is  said 
that  it  would  enable  them  more  readily  to  revoke  the  authority. 
But  these  letters  are  not  issued  without  either  undoubted  con- 
fidence in  the  persons  for  whose  benefit  they  are  drawn,  or  upon 
ample  security.  The  idea  of  giving  notice  of  revocation  to  any 
party  but  that  for  whose  benefit  they  are  drawn;  is  never  en^ 
tertained  by  the  guarantors  in  cases  of  general  letters.  When 
they  wish  to  provide  for  any  such  contingency  the  letters  are 
framed  accordingly.  Again,  in  this  case  the  parties  themselves 
have  treated  this  letter  as  not  limited  to  a  single  bank,  for  they 
accepted  bills  which  had  been  discounted  by  the  plaintiffs. 


12 : ; l_*  THE    CONTRACT    DEFINED. 

1  am,  therefore,  satisfied  thai  the  plaintiffs  were  authorized  to 
purchase  lulls  upon  the  faith  of  the  letter  and  accompanying 
guaranty,  and  thai  the  previous  purchase  of  bills  by  another 
hank   is  no  defense. 

Whether  the  letters  had  been  revoked  with  the  knowledge  of 
the  plaintiffs  before  the  draft  was  discounted  by  them,  was  a 
question  of  fact  for  the  jury.  It  would  clearly  constitute  no  de- 
fense unless  the  plaintiffs  had  notice  of  it.  The  judgment  of 
the  superior  court  must  therefore  be  affirmed  with  costs. 

Judgment  affirmed. 


Effect  of  the  Statute  of  Frauds  upon  the  Contract  of  Surety 

or  Guarantor* 

HOOKER  ET  AL.,  RESPONDENTS,  v.  RUSSELL, 
APPELLANT. 

67  Wis.  257;  30  N.  W.  358.     1886. 

Appeal  from  the  County  Court  of  Fond  du  Lac  County. 

The  facts  will  sufficiently  appear  from  the  opinion. 

Orton.  J.  In  1883  the  village  board  of  the  village  of  Bran- 
don, in  Fond  du  Lac  eounty:  determined  that  no  license  for  the 
sale  of  intoxicating  liquors  in  said  village  should  be  granted 
during  the  ensuing  year,  and  passed  an  ordinance  prohibiting 
such  sale  and  providing  for  the  punishment  of  those  who  should 
violate  the  same.  Certain  persons  continued  to  sell  intoxicating 
liquors  in  said  village  notwithstanding,  and  in  violation  of  said 
ordinance,  and  in  duly,  1SSM,  said  village  board,  by  resolution, 
employed  the  said  plaintiffs  and  respondents  to  act  as  the  at- 
torneys of  the  village  in  the  prosecution  of  such  offenders.  The 
respondents,  as  such  attorneys  of  the  village,  commenced  several 
prosecutions  under  such  employment,  and  rendered  therein  legal 
services,  amounting  in  value  to  $173.66  up  to  and  including 
September  7,  1883,  when  on  that  day  an  injunction  was  served 
upon  said  village,  a1  the  suit  of  one  David  Whitton,  a  taxpayer 
of  said  village,  restraining  the  village  board  from  appropriating 

*  See  Sec.  880,  Vol.  6,  Cyclopedia  of  Law. 


HOOKER  ET  AL.  v.  RUSSELL.  233 

or  paying  out  of  the  treasury  any  money  for  the  payment  of 
attorneys'  fees  in  the  prosecution  of  criminal  actions  theretofore 
or  thereafter  had  for  the  violation  of  the  excise  laws  of  the 
state,  and  from  appropriating  or  paying  any  money  for  ex- 
penses incurred  in  such  prosecutions.  Notwithstanding  said 
injunction,  the  respondents  continued  to  render  legal  services 
for  said  village  in  such  prosecutions  up  to  and  including  the 
26th  day  of  January,  1884,  the  value  of  which  then  was  the  sum 
of  $657.34,  including  the  above  amount  of  $173.66.  The  bill 
for  these  services  was  presented  to  and  filed  with  the  village 
board  as  a  claim  against  the  village,  and  the  respondents 
brought  suit  against  the  village  therefor,  which  suit  is  still 
pending. 

The  seventh  finding  of  fact,  which  must  be  received  as  a  verity 
in  the  case  as  neither  party  has  accepted  thereto,  is  as  follows: 
"That  on  or  about  the  8th  day  of  September,  1883,  and  subse- 
quent to  the  service  of  such  injunctional  order  upon  said  vil- 
lage, the  defendant,  George  A.  Russell,  requested  the  plaintiff 
to  continue  said  prosecutions  notwithstanding  said  injunction, 
and  promised  and  agreed  to  pay  them  for  their  past  and  future 
services  therein  in  case  of  their  inability  to  collect  their  claim 
therefor  from  said  village."  It  was  on  this  promise  that  this 
suit  was  brought  against  the  appellant,  and  on  which  the  re- 
spondents recovered  in  the  county  court.  There  can  be  no  ques- 
tion but  that  this  special  promise  of  the  appellant,  not  in  writ- 
ing, to  answer  for  the  debt  of  the  village  of  Brandon,  is  void 
by  the  statute  of  frauds  (R.  S.  sec.  2307,  subd.  2).  The  services 
of  the  respondents  were  rendered  for  the  village,  and  under  a 
contract  with  the  village.  They  have  presented  their  claim  to,  as 
being  against,  the  village,  and  have  sued  the  village  as  being 
liable  therefor.  "So  long  as  the  original  debt  remains  payable 
by  the  debtor  to  his  creditor,  any  arrangement  whatever  by 
which  another  party  promises  to  pay  that  debt  is  within  the 
very  letter  of  the  statute,  no  matter  from  what  source  the  con- 
sideration of  the  latter  promise  is  derived."  Emerick  v.  Sanders, 
1  Wis.  77;  Cotterill  v.  Stevens,  10  Wis.  422;  Cook  v.  Barrett, 
15  Wis.  596. 

Against  the  operation  of  the  statute  upon  this  promise  it  is 
claimed  (1)   that  it  has  been  judicially  determined,  in  the  in- 


L>;;4  THE    CONTRACT    DEFINED. 

junction  suit  against  the  village,  that  the  village  is  not  liable 
for  .sii.-h  services.  It  is  sufficiently  answered  that  neither  of 
these  parties  was  a  party  to  that  suit,  and  therefore  not  bound 
by  the  judgmenl  therein.  But,  again,  it  was  a  suit  in  equity, 
and  there  might  have  been  other  reasons  for  the  injunction  than 
tli.it  the  village  was  not  legally  liable  on  the  contract  to  pay 
their  attorneys  for  their  services  in  the  prosecutions.  (2)  It  is 
claimed  that  for  future  services  of  the  respondents  the  credit 
was  given  to  the  appellant.  All  the  services  were  performed  un- 
der  one  contract  with  the  village.  It  is  so  alleged  in  the  com- 
print, and  the  respondents  not  only  so  testify,  but  they  have 
preferred  their  claim  against  the  village,  and  brought  suit 
against  the  village  for  it.  The  village  has  never  been  released 
from  any  part  of  it.  (3)  It  is  claimed  that  the  appellant 
originally  promised  to  pay  for  such  future  services  on  a  new 
consideration  of  benefit  or  advantage  to  himself  as  a  citizen  and 
officer  of  the  village,  having  an  interest  in  enforcing  the  laws 
against  the  sale  of  intoxicating  liquors.  His  zeal  in  the  cause 
of  temperance,  and  his  interest  in  enforcing  the  laws  in  com- 
mon witli  all  other  citizens,  would  scarcely  be  a  good  or  valu- 
able consideration  for  a  promise  to  pay.  But  the  above  finding 
is  sufficient  to  show  that  the  same  promise  embraced  the  pay- 
ment for  the  past  and  future  services  alike. 

We  shall  not  decide  in  this  case  whether  the  village  of  Bran- 
don is  liable  to  the  respondents  on  its  contract,  although  the 
county  court  found,  as  a  conclusion  of  law,  that  the  village  was 
not  liable  and  had  no  authority  to  make  the  contract.  The  vil- 
lage is  not  a  party  to  this  suit,  and  has  not  denied  its  liability  in 
this  suit.  The  village  is  presumptively  liable,  for  it  has  the 
capacity  to  contract.  It  will  be  in  time  to  decide  the  question  of 
the  liability  of  the  village  on  this  particular  contract  when  the 
action  of  the  respondents  against  the  village  to  enforce  it  is  on 
trial. 

Are  the  respondents  bound  by  the  finding  in  this  case  that 
the  village  is  not  liable?  It  can  only  be  determined  whether 
the  respondents  are  able  to  collect  their  claim  against  the  vil- 
lage, when  their  suit  for  that  purpose,  now  pending,  shall  be 
tried.  In  any  view  that  can  be  properly  taken  of  this  promise, 
it.  is  a  collateral  one  and  void. 


GIBBS  BT  AL.  v.   BLANCHARD.  235 

By   the   Court. — The   judgment   of  the   county   court   is   re- 
versed, and  the  cause  remanded  for  a  new  trial. 


GIBBS  ET  AL.,  v.  BLANCHARD. 
15  Mick.  292.     1867. 

The  facts  and  the  exceptions  to  the  rulings  and  the  charge  of 
the  court  are  stated  in  the  opinion. 

Christinacy,  J.  The  main  question  in  this  case  is  whether 
the  promise  of  Gibbs  (one  of  the  defendants  below)  comes  with- 
in the  second  clause  of  the  second  section  of  our  statute  of 
frauds,  asa"  special  promise  to  answer  for  the  debt,  default,  or 
misdoings"  of  Daily,  the  other  defendant. 

The  declaration  contains  a  special  count  upon  the  contract, 
and  the  common  counts  for  goods  sold  and  delivered.  The 
special  count  sets  forth  that,  "in  consideration  that  said  plaintiff 
agreed  to  sell  to  the  said  Daily  a  certain  horse  which  the  plain- 
tiff then  and  there  had,  of  the  value  of  sixty  dollars,  undertook 
and  promised  the  said  plaintiff  to  make^  sign  and  deliver  their 
promissory  note  to  said  plaintiff  or  bearer,  in  the  sum  of  sixty 
dollars,  for  the  purchase  price  of  said  horse,  which  said  prom- 
issory note  was  to  be  payable  thereafter,  in  six  months  from 
date."  It  further  alleges  that  the  plaintiff,  relying  upon  said 
promise  of  said  defendants,  and  in  consideration  thereof,  did 
sell  and  deliver  the  horse  to  said  John  Daily,  for  the  price  of 
sixty  dollars.  The  breach  alleges  the  failure  and  refusal  to 
make  and  deliver  the  note,  as  well  as  the  refusal  to  pay  the 
money. 

It  was  clear,  from  the  evidence,  that  the  horse  was  bought  for 
the  benefit  of,  and  delivered  to  Daily,  and  that  the  plaintiff 
would  not  have  sold  the  horse  on  the  credit  of  Daily  alone. 
But  upon  the  question,  whether  Daily  and  Gibbs  were  to  give  a 
joint  note,  or  whether  the  latter  was  only  to  indorse  the  note 
of  the  former,  or  to  become  his  guarantor,  the  evidence  was  con- 
flicting. 

There  was  evidence  from  which  the  jury  might  have  found  a 
joint  promise,  or,  in  other  words,  a  promise  by  both  to  execute 
and  deliver  to  the  plaintiff  a  joint  note  for  the  price ;  and  from 


236  THE    CONTRACT    DEFINED. 

the  circumstances  and  subsequenl  acts  of  the  parties,  the  jury 
might  have  ben  authorized  to  find  that  the  note  was  to  be  made 
payable  In  six  months,  though  they  might  also  have  found  that 
do  particular  time  was  mentioned  or  expressly  agreed  upon 
for  \\  hich  the  note  was  to  run. 

The  evidence  tending  to  show  thai  the  promise  was  joint,  or 
thai  a  joinl  note  was  to  be  given,  was  substantially  this:  Gibbs 
and  Daily  called  upon  the  plaintiff  together,  and  Gibbs  asked 
plaintiff  if  he  wanted  to  sell  his  mare.  Plaintiff  said  he  did. 
Gibbs  inquired  the  price,  and  being  told  sixty  dollars,  wanted  to 
know  if  plaintiff  would  take  Daily's  note  if  he;  Gibbs,  would 
sign  il  and  see  it  paid;  to  this  plaintiff  assented.  The  mare  not 
being  present,  and  Gibbs,  being  anxious  to  gel  home,  said  Daily 
mighl  go  with  plaintiff  and  sec  the  mare,  and  if  the  mare  suited 
him  he  mighl  fetch  her  back  with  him  and  draw  up  a  note  and 
Daily  mighl  sign  it,  and  the  first  time  he,  Gibbs,  went  to  town 
he  would  sign  it.  The  mare  was  delivered  to  Daily,  who  signed 
;i  note  for  it  at  six  months,  which  was  afterwards  endorsed  by 
(iihhs  on  Sunday.  This  note  was  produced  on  the  trial  and 
tendered  back  to  defendants. 

The  court  charged  the  jury  that  "if  it  was  the  understanding 
of  the  parties  that  Daily  was  the  purchaser,  and  that  he  should 
give  his  note  to  the  plaintiff  for  the  price,  and  that  Gibbs  should 
so  sign  as  only  to  be  liable  as  indorser,  the  plaintiff  must  fail. 
If  however,  the  understanding  of  the  parties  was,  at  the  time, 
that  Gibbs  and  Daily  were  the  buyers  of  the  mare,  and  that 
both  were  to  be  liable  as  purchasers  for  the  purchase  price,  and, 
accordingly,  should  become  joint  makers  of  a  promissory  note 
for  its  payment,  though  Daily  was  no  less  relied  upon  by  the 
plaintiff  than  Gibbs,  and  though,  in  point  of  fact,  it  was  under- 
stood that  the  mare,  when  bought,  should  belong  to  Daily,  the 
plaintiff  is  entitled  to  recover.  That  the  principle  in  this  class 
of  cases  is,  that  if  the  agreement  be  such  that  two  persons,  in 
the  purchase  of  goods,  do  at  the  same  time  become  co-debtors 
to  the  seller  for  the  price,  then  both  are  purchasers,  and  the  case 
is  not  within  the  statute  of  frauds,  and  no  memorandum  in 
writing  is  necessary.  But  if  it  be  such  that  one,  at  the  time, 
becomes  debtor  to  the  seller,  and  the  other  security  only  for  the 
debt,  it   is  within  the  statute  of  frauds,  and  the  undertaking  of 


GIBBS  ET  AL.  v.  BLANCHARD.  237 

the  security  is  void  unless  a  memorandum  of  it  in  writing  is 
made. ' ' 

Though  the  question  is  one  requiring  some  accuracy  of  dis- 
crimination, I  have  come  to  the  conclusion,  after  a  careful  ex- 
amination of  the  authorities,  that  the  charge  of  the  court  was 
not  only  correct,  but  that  it  expresses  the  true  rule  of  law  appli- 
cable to  the  question  with  remarkable  clearness. 

No  question  can  arise  a«  to  the  sufficiency  of  the  consideration 
for  the  undertaking  of  Gibbs,  whether  original  or  collateral, 
within  or  without  the  statute.  Without  his  promise,  the  plain- 
tiff would  not  have  parted  with  his  property.  The  considera- 
tion, therefore,  is  equally  as  good  in  law  as  a  sale  of  the  horse 
to  him  alone  would  have  been  for  his  sole  promise  to  pay  the 
price. 

The  plain  ordinary  meaning  of  the  language  used  in  this 
clause  of  the  statute  would  seem  sufficiently  to  indicate  that  the 
class  of  special  promises  required  to  be  in  writing  includes  only 
such  as  are  secondary  or  collateral  to,  or  in  aid  of  the  undertak- 
ing or  liability  of  some  other  party  whose  obligation,  as  be- 
tween the  promisor  and  promisee,  is  original  or  primary.  If  there 
be  no  such  original  or  primary  undertaking  or  liability  of  an- 
other party,  there  is  nothing  to  which  the  promise  in  question 
can  be  secondary  or  collateral,  and  the  promise  is,  therefore, 
original  in  its  nature,  and  not  within  the  statute.  In  other 
words,  the  statute  applies  only  to  promises  which  are  in  the 
nature  of  guaranties  for  some  original  or  primary  obligations 
to  be  performed  by  another.  This  has  been  settled  by  a  remark- 
ably uniform  course  of  decision  since  the  passage  of  the  statute 
(29  Car.  II.,  ch.  3,  Sec.  4),  which  does  not  essentially  differ 
from  our  own  and  those  of  most  of  the  states  of  the  Union.  So 
numerous  and  so  uniform  have  been  the  decisions  upon  this 
point,  that  it  would  savor  of  affectation  to  cite  them.  They  will 
be  found  cited  in  most  of  the  elementary  treatises :  See  Browne 
on  Stat.  Frauds,  ch.  10;  Chitty  on  Cont.,  p.  442,  et  seq.;  2  Pars, 
on  Cont.,  4th  ed.,  301.  And  though  the  terms  original  and 
collateral  have  been  criticised,  yet  when  used,  the  one  to  mark 
the  obligation  of  the  principal  debtor,  the  other  that  of  the  per- 
son who  undertakes  to  answer  for  such  debt,  they  are  strictly 
correct,  and  give  the  true  view  of  this  clause  of  the  statute :  Mai- 


238  THE    CONTRACT    DEFINED. 

Lory  v.  Gillett,  21  X.  V.  412,   11  I;  Browne  on  Stat.  Frauds,  eh. 
10,  Sec.  192. 

As  a  resull  of  this  principle,  thai  one  must  be  held  originally 
or  primarily,  and  the  other  only  collaterally,  or  in  default  of  the 
Former  it  follows  thai  the  statute  only  applies  to  such  promises 
ma(ie  j,,  behalf  or  for  the  benefil  of  another,  as  would,  if  valid, 
create  a  distinct  and  several  liability  of  the  party  thus  prom- 
ising,  and  ii.it  a  joint  liability  with  the  party  in  whose  behalf 
il  is  ma(ie.  For  if  one  be  bound  in  the  first  instance  and  at 
all  events,  and  the  other  only  contingently,  or  on  default  of  the 
first,  the  liability  could  di  t  be  joint.  On  the  other  hand,  if  the 
promise  or  the  obligation  of  the  two  be  joint,  as  between  them, 
on  the  one  side  and  the  promisee  on  the  other,  then  neither  is 
collateral  to  the  other,  and  such  joint  promise  is  original  as  to 
both.  Bence  it  has  been  held  in  England  that  an  agreement  to 
convert  a  separate  into  a  joint  debt  is  not  within  the  statute; 
the  effect  being  to  create  a  new  debt,  in  consideration  of  the 
former  being  extinguished:  Ex  parte  Lane,  1  De  Gex.  300; 
Browne  on  Stat,  of  Frauds,  193. 

Where  the  question  arises  (as  it  has  in  almost  all  the  cases) 
as  one  of  the  several  liability  of  the  party  promising  in  behalf 
of  another  (as  for  the  price  of  goods  sold  to  another),  the  true 
rule  undoubtedly  is,  that  if  the  latter  (to  whom  the  goods  are 
sold)  be  liable  at  all,  then  the  promise  of  the  former  is  collateral, 
and  must  be  in  writing;  because,  from  the  very  nature  of  such  a 
case,  the  party  to  whom  the  goods  are  sold,  and  in  whose  behalf 
the  promise  is  made  is  the  principal  debtor,  and  because  it 
woidd  be  manifestly  unreasonable  to  bold  that  both  were  in  such 
cases  severally  liable  as  principals,  as  upon  several  original 
undertakings  at  the  same  moment.  See  Hetfield  et  al.  v.  Dow,  3 
Dutcher,  410;  Dixon  v.  Frazee,  1  E.  D.  Smith,  32.  And  this 
rule  applies  equally  when  the  promise  is  made  in  reference  to 
a  pre-existing  liability  of  another,  if  the  plaintiff  in  accepting 
the  promise  does  not  release  the  principal.  In  reference  to  all 
such  cases  the  authorities  may  be  said  to  be  entirely  uniform. 
But  the  rule  thus  established  as  to  cases  where  the  question  is 
one  of  the  several  liability  of  the  party  making  the  special  prom- 
ise, can,  I  think,  have  no  application  to  the  question  of  a  joint 
liability  upon  a  joint  promise  of  the  two.     The  only  intimation 


GIBBS   ET   AL.   v.   BLANCHARD.  239 

to  the  contrary  which  I  have  seen  is  to  be  found  in  a  dictum  of 
Judge  Catron  in  Matthews  v.  Milton,  4  Yerg,  576,  a  case  in 
which  no  such  question  was  involved,  there  being  no  evidence 
tending  to  show  a  joint  promise.  To  say  that  when  the  party 
originally  owing  the  debt,  or  for  whom  goods  are  purchased  and 
to  whom  they  are  delivered,  is  liable  at  all?  no  other  person  can 
be  held  severally  liable  unless  the  promise  be  in  writing,  is  mere- 
ly saying  that  such  promise  is  collateral,  and,  therefore,  within 
the  statute.  But  to  say  that  they  cannot  both  become  jointly 
liable  upon  their  joint  promise,  not  in  writing,  to  pay  such  debt 
or  the  price  of  such  goods,  if  the  party  originally  owing  the 
debt  or  receiving  the  goods  be  at  all  liable,  is  but  another  form 
of  declaring  that  it  is  not  competent  for  both  to  become  original 
promisors,  as  between  them  and  the  promisee,  unless  both  are 
under  an  equal  obligation,  as  between  themselves,  for  the  ulti- 
mate payment  of  the  debt.  Such  a  proposition,  it  seems  to  me, 
can  not  be  maintained  either  upon  principle  or  authority.  Such 
an  objection  to  a  joint  promise  seems  rather  to  have  reference 
to  some  supposed  defect  of  consideration  (a  question  entirely 
distinct  from  the  statute)  than  to  the  promise.  And,  if  the 
party  promising  jointly  with  another  to  whom  goods  are  fur- 
nished, can  not  be  bound  jointly  with  the  latter,  because,  as 
between  the  two  promisors,  he,  not  having  received  the  goods, 
is  under  no  obligation  to  pay;  then  the  same  reason  ought  to 
operate  with  still  greater  force  against  his  several  promise  to 
pay  the  whole  price  of  goods  received  by  the  other.  But  the 
law  in  the  latter  case  is  well  settled  the  other  way. 

It  was  very  correctly  remarked  by  Whelply,  J.,  in  Hetfield  et 
al.  v.  Dow,  above  cited,  that,  "to  settle  the  rights  of  promisors 
inter  sese,  to  ascertain  as  between  them  who  is  to  pay  the  debt 
ultimately,  is  no  part  of  the  object  of  the  act.  It  by  no  means 
follows  that  he  who  by  the  arrangement  between  the  promisors 
ultimately  may  be  bound  to  pay  the  debt  is,  as  to  the  promisee, 
the  principal  debtor.  That  does  not  concern  him."  This  view, 
it  seems  to  me,  rests  upon  sound  reasons — reasons  which  must 
naturally  enter  into  the  consideration  of  business  men,  in  the 
ordinary  transactions  of  business.  Where  a  party  has  been 
willing  to  put  himself  in  the  position  of  an  original  promisor 
(either  jointly  or  severally)   to  a  vendor  for  goods  purchased 


240  THE    CONTRACT    DEFINED. 

for  the  benefit  of,  or  delivered  to,  another,  the  vendor  has  a 
righl  conclusively  to  presume  that  such  relations  or  arrange- 
in. nts  exisl  between  the  two  as  to  make  it  the  duty  of  the  party 
or  parties  promising,  as  lid  ween  themselves,  to  pay  according 
to  the  promise.  And  to  allow  the  contrary  to  be  shown  to  defeat 
the  promise  would  operate  as  a  fraud  upon  the  vendor. 

The  question  of  a  joint  promise  appears  to  have  hern  seldom 
raised  for  adjudication  in  connection  with  the  statute  of  frauds; 
hut  the  following  cases  fully  sustain  the  proposition  that  a 
joint  promise  of  two,  whether  to  pay  the  pre-existing  debt  of 
one  of  them,  or  a.  debt  contracted  at  the  time  for  his  benefit  (as 
for  goods  bouuht  for  and  delivered  to  the  one),  does  not  come 
within  the  statute,  hut  it  is  an  original  promise,  as  between  them 
and  the  promisee,  and  valid  without  writing:  Ex  parte  Lane,  1 
De  Gex,  300;  Wainwright  v.  Straw,  15  Vt.  215;  Stone  v.  Walker, 
13  (J ray,  613;  and  Hetfield  v.  Dow,  3  Dutcher  440.  See  also  by 
analogy  Batson  v.  King,  4  H.  &  N.,  739.  The  same  doctrine  is 
laid  down  by  Mr.  Browne  in  his  able  treatise  on  the  statute  of 
frauds:     Ch.  10,  Sec.  197. 

It  is  true  that  in  Wainwright  v.  Straw,  which  most  resembles 
the  present  case,  the  decision  is  placed  in  part  upon  the  ground 
that  the  sale  was  made  to  both.  The  facts  were  that  Straw  and 
Cunningham  both  went  to  plaintiff's  store  and  said  they  wished 
to  buy  a  stove  for  Straw,  but  that  both  would  be  responsible. 
Now.  T  can  see  no  difference  in  legal  effect  between  the  case  where 
A  and  B  say  to  a  merchant,  "We  want  to  buy  a  stove  for  B,  and 
both  of  us  will  be  responsible,"  and  the  case  where  A  says,  "B 
wishes  to  purchase  a  stove,  but  we  will  both  be  responsible." 
Substantially,  the  transaction  is  the  same;  in  both  cases  alike  it 
is  a  sale  for  the  benefit  of  the  one  on  the  joint  credit  of  the 
two,  and  the  real  question  in  both  cases  is,  whether  the  credit 
was  given  to  both  jointly.  I  do  not  think  the  court,  in  Wain- 
wright v.  Straw,  based  their  decision  upon  the  narrow  and  mere- 
ly verbal  ground  of  the  use  of  the  first  person  plural,  showing 
merely  who  wanted  the  stove,  but  upon  the  broad  ground  above 
stated,  that  it  was  sold  upon  their  joint  credit.  And  in  all  such 
cases  where  the  sale  is  upon  the  joint  credit  and  promise  of  the 
defendants,  though  the  property  is  purchased  for  and  delivered 
to  but  one  of  them,  I  think  the  legal  effect  of  the  transaction 


GIBBS  ET  AL.  v.  BLANCHARD.  241 

constitutes,  as  between  them  and  the  vendor,  a  sale  to  the  two 
jointly.  The  sale  as  between  the  vendor  and  the  vendee  is  to  the 
party  or  parties  to  whom  the  credit  is  given  for  the  price,  with- 
out reference  to  the  question  for  whose  use  it  is  purchased,  or 
who,  as  between  the  promisors,  is  to  be  its  owner  when  bought. 

This  brings  us  to  another  point  in  the  case.  The  sale  (if  upon 
the  joint  credit  and  promise  of  the  defendants)  was  a  joint  sale 
to  both,  as  between  them  and  the  plaintiff.  But  in  the  special 
count  of  the  declaration  it  is  alleged  as  a  sale  to  Daily  only. 
The  plaintiff  cannot,  therefore,  recover  upon  the  special  count. 

But  upon  the  count  for  goods  sold  and  delivered,  the  sale  hav- 
ing been  made  to  both,  the  plaintiff  would  be  entitled  to  recover, 
if  the  facts  be  such  as  would  warrant  a  recovery  upon  a  sale 
made  for  the  joint  benefit  of,  and  the  property  delivered  to  both. 

I  think  there  was  no  error  in  the  charge  or  proceedings  of  the 
court  below,  and  that  the  judgment  should  be  affirmed,  with 
costs. 


CHAPTER  II. 

LIABILITY    OF    SURETY    OR    GUARANTOR— HOW    DIS- 
CHARGED, ETC.* 

Construction  of  Contract  of  Surety  or  Guarantor.^ 

SMITH  ET  AL.,  APPELLANT,  v.  VAN  WYCK, 
RESPONDENT. 

40  Mo.  A  pp.  522.     1890. 

Smith,  P.  J.    *    *    *    The  plaintiffs  sued  defendant  upon  this 
undertaking: 

''Kansas  City,  Mo.,  July,  1885. 
"I  hereby  guarantee  the  payment  of  bills  as  they  mature,  pur- 
chased by  E.  S.  Mendenhall,  of  R.  P.  Smith  &  Sons,  of  Bloom- 
ington,    Illinois,    to    the    amount    of    thirteen   hundred    dollars 
($1,300). 

"T.  C.  Van  Wyck, 
"1501  East  Eighteenth  Street." 

For  a  bill  of  goods  amounting  to  $1,240.60,  sold  by  plaintiffs  to 
said  Mendenhall.  The  facts  and  circumstances  surrounding  the 
execution  of  the  said  undertaking  and  the  relation  of  the  parties 
thereto,  and  to  each  oilier,  may  be  summarized  thus:  Defendant 
had  rented  to  Mendenhall  a  store  and  business  house.  Menden- 
hall had  placed  with  one  of  the  plaintiffs,  who  were  wholesale 
merchants,  an  order  for  goods  amounting  from  thirteen  hundred 
to  seventeen  hundred  dollars.  The  plaintiffs  hesitated  about  fill- 
ing the  order,  and  one  of  them  went  to  defendant  and  told  him 
that  Mendenhall  had  placed  with  them  an  order  for  goods  to  the 
amount  stated,  and  that  they  did  not  like  to  fill  the  same  unless 
defendant  would  guarantee  the  payment  thereof;  that  if  de- 
fendant would  give  his  guaranty  for  thirteen  hundred  dollars. 
and  if  they  sold  Mendenhall  more  ii'oods  than  that,  on  such 
excess  they  would  take  their  chances  for  collecting.    That  there- 


*  See  Sees.  882-905,  Vol.  6,  Cyclopedia  of  Law. 
|See  Sec.  882,  Vol.  6,  Cyclopedia  of  Law. 

242 


SMITH  ET  AL.  v.  VAN  WYCK.  243 

upon  the  defendant  signed  the  undertaking  sued  on.    The  plain- 
tiffs delivered  Mendenhall  goods  to  the  amount  of  the  defend- 
ant's guaranty,  for  the  payment,  of  which  the  defendant  fur- 
nished part  of  the  money.     The  plaintiffs  thereafter  continued 
to  sell  goods  to  Mendenhall  for  about  two  years,  amounting  in 
the  total  to  several  thousand  dollars.    Finally  Mendenhall  failed, 
owing  the  plaintiffs  on  account  of  such  sales  the  amount  sued 
for.     It  may  be  well  doubted  whether  any  question  of  interpre- 
tation of  the  said  undertaking  properly  arises  on  the  abstract  of 
the  record  before  us,  and  at  which  alone  we  can  look.  But,  waiv- 
ing the  consideration  of  that  question  for  the  present,  we  may 
state  that  it  appears  to  us  that  if  we  interpret  the  language  of 
the  said  undertaking  in  the  light  of  a  knowledge  of  the  relation 
of  the  parties,  their  antecedent  acts,  and  of  the  subject-matter 
of  the  same,  as  we  have  the  right  to  do ;  2  Parsons  on  Contracts 
[7  Ed.]  top  p.  564;  Edwards  v.  Smith,  Adm'r,    63    Mo.    119; 
Bunce,  Adm'r,  v.  Bick's  Ex'r,  43  Mo.  266;  Hutchinson  v.  Bow- 
ker,  5  Mees.  &  W.  535 ;  Black  Kiver  L.  Co.  v.  Warner,  93  Mo. 
374,  it  becomes  quite  obvious  that  it  cannot  be  held  to  be  a 
continuing  one,  and  this,  too,  in  view  of  the  maxim,  verba  fortius 
accipiuntur  contra  proferentem.     It  is  held  in  this  state  that 
when  it  is  doubtful  from  the  language  contained  in  the  contract, 
wrhether  the  guaranty  was  for  a  single  dealing  or  a  continuous 
one,  the  true  principle  of  sound  ethics  is  not  to  set  up  a  pre- 
sumption for  or  against  the  guarantor,  but  to  give  the  contract 
the  sense  in  which  the  person  making  the  promise  believed  the 
other  party  to  have  accepted  it,  if,  in  fact,  he  did  accept  it. 
Boehne  et  al.  v.  Murphy,  46  Mo.  57;  Shine's  Adm'r  v.  Bank,  70 
Mo.  524.     Extrinsic  evidence  cannot  be  received  to  contradict, 
add  to,  subtract  from  or  vary  the  terms  of  a  guaranty,  but,  as 
has  been  stated,  when  its  meaning  is  doubtful,  or  obscurely  ex- 
pressed, parol  testimony  in  relation  thereto,  requisite  to  a  clear 
understanding  of  its  purport,  is  admissible.     The  very  language 
of  the  instrument  sued  on  negatives  the  idea  that  it  was  intended 
to  be  a  continuing  guaranty.    When  the  relation  of  the  parties, 
and  the  circumstancas  under  which  the  guaranty  in  question 
was  entered  into,  are  considered,  its  meaning  becomes  quite  ap- 
parent.    The  fact  that  plaintiffs  had  sold  Mendenhall  goods 
amounting  to  thirteen  hundred  dollars,   and  that  they  would 


244  LIABILITY   OF    SURETY. 

not  deliver  the  same  to  him  without  defendant  would  guarantee 
the  payment  thereof,  coupled  with  the  further  fact  that  this 
amount  was  inserted  in  the  instrument,  for  which  defendant 
bound  himself  for  "bills  as  they  mature,  purchased" — not  to 
be  purchased — conclusively  shows  that  the  transaction  and  un- 
dertaking related  solely  and  entirely  to  the  unfilled  order,  or 
orders,  for  goods  plaintiff  had  received  of  Mendenhall,  at  the 
time  of  the  execution  of  the  contract,  and  not  to  subsequent 
sales  and  purchases.  We  think  that  upon  the  record  before  us 
the  judgment  of  the  circuit  court  was  for  the  right  party.  The 
exceptions  to  the  rulings  of  the  court  in  respect  to  the  intro- 
duction of  evidence  were  not  preserved  by  a  motion  for  a  new 
trial,  as  appears  by  the  abstract.  But,  whether  this  is  so  or  not, 
it  is  quite  evident  that  none  of  these  adverse  rulings  of  the 
court  to  the  plaintiffs  materially  affected  the  merits  of  the  case. 
Indeed,  the  plaintiffs,  in  their  brief,  make  no  point  in  respect  to 
that  matter. 

The  judgment,  with  the  concurrence  of  Judge  Ellison,  Judge 
Gill  not  sitting,  will  be  affirmed. 


THE  PEOPLE  OF  THE  STATE  OF  NEW  YORK,  RESPON- 
DENT, v.  BACKUS  ET  AL.,  APPELLANTS. 

117  N.  Y.  196;  22  N.  E.  759.     1889. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  Third  Judicial  Department,  entered  upon  an 
order  made  February  5,  1889,  which  affirmed  a  judgment  in 
favor  of  plaintiff,  entered  upon  the  report  of  a  referee. 

This  action  was  brought  by  the  people  against  the  defendants 
as  guarantors  upon  the  following  bond  or  contract  of  the 
National  Bank  of  Auburn,  to-wit : 

"Whereas  certain  moneys  of  the  State  of  New  York  have  been 
and  are  proposed  to  be  deposited  in  the  First  National  Bank  of 
Auburn,  under  the  direction  of  the  .comptroller  of  the  state,  by 
the  agent  and  warden  of  Auburn  prison,  to  the  credit  of  the 
treasurer  of  the  state,  for  safekeeping  and  for  interest. 


PEOPLE,    ETC.,    v.    BACKUS.  245 

"Now,  therefore,  the  said  First  National  Bank  of  Auburn,  in 
consideration  of  such  deposits  and  for  value  received,  does 
hereby  agree  to  pay  on  demand,  to  the  order  of  the  state  treas- 
urer, or  other  officer  of  the  state  having-  lawful  authority  to  de- 
mand the  same,  such  deposits,  and  any  and  all  parts  thereof, 
together  with  interest  on  daily  balance,  at  the  rate  of  three  per 
cent. 

"Witness  the  seal  of  said  Bank  and  the  signature  of  its  presi- 
dent and  cashier,  this  14th  day  of  June,  1880. ' ' 

The  guaranty  was  as  follows: 

"In  consideration  of  the  making  the  deposits  by  the  people 
of  the  State  of  New  York  in  the  First  National  Bank  of  Au- 
burn, in  the  agreement  mentioned,  and  for  value  received,  we, 
the  undersigned,  Clinton  T.  Backus,  Manson  F.  Backus,  James 
Kerr  and  William  E.  Hughitt,  do  hereby  jointly  and  severally 
guarantee  the  full  and  punctual  performance  of  the  condition 
of  said  agreement  on  the  part  of  said  bank,  and  that  all  such 
deposits  and  interest  shall  be  fully  paid  on  legal  demand.  The 
said  guarantors  may  serve  upon  the  comptroller  a  written  notice, 
terminating  or  limiting  their  liability  under  this  guaranty,  after 
a  date  to  be  specified  in  said  notice,  which  shall  not  be  less  than 
ten  days  after  the  service  of  said  notice. ' ' 

The  agent  and  warden  was  by  law  the  official  manager  of 
the  state  prison  at  Auburn,  and  was  requested  to  deposit  all 
moneys  credited  by  him  each  week  to  the  credit  of  the  treasurer 
of  the  state,  in  a  bank  located  at  Auburn,  and  send  to  the  comp- 
troller weekly  a  statement  showing  the  amount  so  received,  and 
from  whom  or  where  received  and  deposited,  and  the  days  on 
which  such  deposits  were  made,  such  statement  to  be  certified 
by  the  proper  officer  of  the  bank  receiving  such  deposits.  The 
agent  and  warden  was  required  to  verify  by  his  affidavit  that 
the  sum  so  deposited  was  all  the  money  received  by  him  from 
whatever  source  of  prison  income  during  the  week  and  up  to 
the  time  of  the  deposit,  and  all  moneys  so  deposited  by  him 
were  subject  to  the  quarterly  drafts  of  the  treasurer  of  the 
state.  The  law  required  that  any  bank  in  which  deposits  should 
be  made  should,  before  receiving  any  such  deposit,  file  a  bond 
with  the  comptroller  of  the  state,  subject  to  his  approval,  for 
such  sum  as  he  should  deem  necessary.  §  50,  Chap.  460,  Laws  of 
1847,  as  amended  by  Chap.  58,  Laws  of  1854,  and  Chap.  599, 


046  LIABILITY    OF    SURETY. 

Laws  oi  1860  By  section  6  of  Chapter  177  of  the  Laws  of  1877, 
it  was  provided  that  "The  system  of  labor  in  the  state  prisons 
shall  be  by  contracl  or  by  the  stair  or  partly  by  one  system 
and  partly  by  the  other  as  shall  in  the  discretion  of  the  superin- 
tendent 1"'  deemed  best."  Prom  the  time  of  the  execution  of 
the  bond  until  December,  lssl.  the  business  of  the  Auburn  state 
prison  was  carried  on  under  what  was  known  as  the  contract 
system.  By  chapter  21  of  the  Laws  of  that  year,  the  renewal 
of  the  then  existing  contracts,  or  the  making-  of  new  contracts 
for  convid  labor,  was  prohibited  and  after  that  the  prisoners 
were  i  mployed  in  manufacturing  on  state  account.  The  bank 
was  incorporated  under  the  National  Lank  Act  of  1863,  on  the 
31s1  day  of  December  of  that  year,  and  by  its  articles  of  asso- 
ciation il  was  provided  thai  it  should  continue  until  the  25th 
day  of  February,  188:5,  unless  sooner  dissolved  by  the  act  of  a 
majority  of  the  stockholders  thereof.  By  the  Act  of  Congress, 
passed  July  12,  1882,  (U.  S.  Stats,  at  Large,  Vol  22,  p.  162,) 
National  Banks  were  authorized  to  extend  their  corporate  exis- 
tence; and  in  January,  1883,  such  proceedings  were  taken  under 
thai  ad  as  to  extend  the  charter  of  the  bank  and  its  corporate 
existence  until  the  24th  day  of  February,  1903.  By  section  4 
of  thai  act  it  is  provided  that  "any  association  so  extending 
the  period  of  its  existence  shall  continue  to  enjoy  all  the  rights 
and  privileges  and  immunities  granted,  and  shall  continue  to 
be  subjed  to  ;ill  the  duties,  liabilities  and  restrictions  imposed 
by  the  Revised  Statutes  of  the  United  States,  and  other  acts 
having  reference  to  national  banking  associations,  and  it  shall 
continue  to  be  in  all  respects  the  identical  association  it  was 
before  Hie  extension  of  its  period  of  existence." 

Al'lei-  the  giving  of  the  bond  by  the  bank  and  the  guaranty  by 
the  defendants,  the  agenl  and  warden  of  the  prison  made  de- 
posits in  the  bank,  from  time  to  time,  down  to  February,  1888, 
on  whirh  day  there  was  upward  of  $65,000  on  deposit  in  the 
bank,  which  it  refused  and  neglected  to  pay  upon  the  draft  of 
the  State  Treasurer,  it  having  become  insolvent,  and  this  action 
was  broughl  againsl  Ike  defendants,  as  sureties,  to  recover  the 
amounl    remaining  on   deposit. 

Earle  -I.  No  citation  of  authorities  is  needed  to  show  that  the 
contracts  of  sureties  are  to  be  construed  like  other  contracts 


PEOPLE,    ETC.,    v.    BACKUS.  247 

so  as  to  give  effect  to  the  intention  of  the  parties.  In  ascertain, 
ing  that  intention  we  are  to  read  the  language  used  by  the  par- 
ties in  the  light  of  the  circumstances  surrounding  the  execution 
of  the  instrument,  and  when  we  have  thus  ascertained  their 
meaning  we  are  to  give  it  effect.  But  when  the  meaning  of  the 
language  used  has  been  thus  ascertained,  the  responsibility  of 
the  surety  is  not  to  be  extended  or  enlarged  by  implication  or 
construction,  and  is  strictissimi  juris. 

After  the  contract  system  in  the  state  prisons  was  abolished, 
and  manufacturing  therein  could  be  done  only  on  state  account, 
the  amount  of  money  deposited  in  this  bank  by  the  agent  and 
warden  largely  increased,  and  it  is  now  claimed  on  behalf  of  the 
defendants  that  their  responsibility  as  sureties  was  largely  ex- 
tended beyond  what  was  contemplated  at  the  time  of  the  execu- 
tion of  their  guaranty,  and  that  they  are  therefore  discharged. 

By  the  statutes  in  force  at  the  time  of  the  execution  of  the 
bond  and  guaranty,  the  agent  and  warden  of  the  prison  was  re- 
quired to  deposit  all  the  moneys  received  by  him  from  any 
source  in  the  bank.  It  is  not  reasonable  to  suppose  that  the 
sureties,  when  they  signed  their  guaranty,  had  in  mind  the  par- 
ticular source  from  which  the  agent  and  warden  received  the 
money.  They  must  have  known  that  they  became  responsible 
for  all  the  moneys,  from  whatever  source,  coming  into  his  hands 
to  be  deposited.  It  cannot  be  supposed  that  they  had  in  mind 
that  the  system  of  labor  then  in  force  at  the  prison  would  re- 
main unchanged  for  an  indefinite  time,  or  that  they  cared  any- 
thing about  it.  Much  stress  is  laid  upon  the  words  in  the  bond, 
' '  certain  moneys, ' '  which  had  been  and  were  proposed  to  be  de- 
posited. We  think  those  words  have  reference  to  the  moneys 
to  be  deposited  by  the  agent  and  warden  of  the  prison,  as  dis- 
tinguished from  other  moneys  of  the  state.  They  were  intended 
to  point  out  the  source  from  which  the  moneys  of  the  state  to 
be  deposited  should  come;  and  the  words  "such  deposits,"  used 
later  in  the  bond,  have  reference  to  the  deposits  to  be  made  by 
the  agent  and  warden  of  the  prison.  So,  the  bond,  in  the  most 
general  terms,  covers  and  applies  to  all  the  money  to  be  de- 
posited in  the  bank,  under  the  direction  of  the  comptroller  of 
the  state,  by  the  agent  and  warden  of  the  prison.  The  words 
"certain  moneys"  and  "such  deposits"  do  not  indicate  that  the 


248  LIABILITY    OF    SURETY. 

parties  then  had  in  mind  the  source  from  which  the  agent  and 
warden  should  receive  his  money,  or  the  particular  moneys 
which  he  had  theretofore  deposited.  But  they  manifestly  have 
reference  to  all  the  moneys  which,  under  the  direction  of  the 
Comptroller,  he  mighl  deposit  in  the  bank.  The  bank  desired 
to  get  all  the  deposits  it  could,  and  the  defendants,  who  were 
directors  and  officers  of  the  bank,  desired  to  secure  all  the  de- 
pcsits.  It  cannot  be  supposed  that  they  contemplated,  at  the 
time  they  signed  their  guaranty,  that  their  liability  was  to  be 
limited  or  restricted  to  the  amounts  which  had  been  previously 
deposited,  or  that  those  amounts  had  any  influence  whatever 
upon  their  action.  They  must  therefore  be  held  to  the  plain 
language  of  their  guaranty,  and  in  holding  that  it  covers  moneys 
deposited  subsequently  to  1884,  we  do  not  extend  their  responsi- 
bility by  implication  or  construction,  but  simply  hold  them  to 
the  responsibility  plainly  expressed  in  the  language  of  the  bond 
and  the  guaranty. 

It  is  still  further  claimed,  on  the  part  of  the  defendants,  that 
they  are  discharged  from  any  liability  on  their  guaranty  on 
account  of  the  extension  of  the  existence  of  the  corporation  in 
1883,  before  any  default  on  the  part  of  the  bank,  and  for  this 
contention  the  learned  counsel  for  the  defendants  cites  Thomp- 
son v.  Young,  2  Ohio,  334;  Union  Bank  v.  Ridgeley,  1  H.  & 
G.  324;  Bank  of  Washington  v.  Barrington,  2  Pa.  27;  Brown 
v.  Latimore,  17  Cal.  93.  None  of  those  cases  are  precisely  like 
this  in  their  circumstances,  but  so  far  as  they  uphold  the  con- 
tention of  the  defendants  we  are  quite  unwilling  to  follow  them. 
The  contrary  doctrine  was  held  in  Exeter  Bank  v.  Rogers,  7  N. 
H.  21;  and  we  think  our  decision  in  National  Bank  of  Pough- 
keepsie  v.  Phelps,  97  N.  Y.  44,  is  ample  authority  for  the  main- 
tenance of  this  recovery,  notwithstanding  extension  of  the  cor- 
porate existence  of  the  bank.  In  the  latter  case,  under  the  pro- 
visions of  the  National  Banking  Act  and  of  chapter  97  of  the 
Laws  of  1865,  the  state  bank  was  transformed  into  a  national 
bank,  and  it  was  held  to  be  but  a  continuance  of  the  same  body 
under  a  changed  jurisdiction ;  that  between  it  and  those  who  had 
contracted  with  it,  it  retained  its  identity  and  might,  as  a  na- 
tional bank,  enforce  contracts  made  with  it  as  a  state  bank;  that 
where  a  state  bank,  at  the  time  of  its  change  to  a  national  bank, 


PEOPLE,    ETC.,    v.    BACKUS.  249 

held  a  continuing  guaranty  of  loans  made  by  it  upon  the 
strength  of  which  it  had  made  loans,  and  after  the  change  had 
made  further  advances,  an  action  was  maintainable  by  the  na- 
tional bank  upon  the  guaranty,  and  that  the  guarantor  was 
liable  for  the  loans  made,  both  before  and  after  the  change. 
Here  a  new  corporation  was  not  formed;  but  there  was  a  mere 
prolongation  of  the  existence  of  the  same  corporation  whose 
corporate  identity  was  not  changed  or  lost.  The  bank  which  de- 
faulted was  the  same  bank  for  which  the  defendants  became 
bound.  There  were  not  two  banks  in  succession,  but  all  the  time 
one  bank.  Its  charter  was  amended  so  as  to  extend  its  exist- 
ence; and  in  the  original  national  banking  act  (§  67),  it  was 
provided  that  Congress  could,  at  any  time,  "amend,  alter  or 
repeal  this  act."  It  would  certainly  be  a  very  inconvenient 
rule  to  hold  that  all  the  contracts  of  sureties  to  the  bank,  and 
of  sureties  by  the  bank,  to  other  persons  should  be  destroyed 
by  every  material  change  or  alteration  in  its  charter.  The  con- 
tract was  entered  into  by  the  sureties  with  knowledge  of  this 
law,  and  it  became  a  part  of  their  contract  as  if  they  had  stipu- 
lated that  the  changes  or  alterations  might  be  made.  The  act 
of  1882  was  a  mere  amendment  or  alteration  of  the  previous 
banking  act. 

We  do  not  deem  it  important  to  consider  the  effect  that  should 
be  given  to  the  fact  that  these  various  defendants,  as  officers 
of  the  bank,  procured  the  extension  of  its  existence,  of  which 
they  now  seek  to  take  advantage. 

For  the  reasons  we  have  already  given,  and  those  so  well  ex- 
pressed in  the  opinion  of  the  learned  referee  before  whom  the 
case  was  tried,  we  think  the  judgment  should  be  affirmed,  with 
costs. 

All  concur. 

Judgment  affirmed. 


250  LIABILITY    OF    SURETY. 

When  th  Surety  or  Guarantor  May  fa  Suedr— Meaning  of  "Due 

Diligt  nee." 

MrMIKKAY   ET  Ah.  v.  XOYES. 

,  3  N.   )'.     23.     1878. 

Rappallo,  J.  The  guaranty  on  which  this  action  is  broughl 
is  contained  in  an  assignment  of  a  bond  and  mortgage,  and  is 
in   the   following  form: 

"I  hereby  covenant  *  *  *  that  in  case  of  foreclosure  and 
sale  of  tli"  mortgaged  premises  described  in  said  mortgage,  if 
the  proceeds  of  such  sale  shall  be  insufficient  to  satisfy  the  same, 
with  the  costs  of  foreclosure,  I  will  pay  the  amount  of  such  de- 
ey  to  the  said  party  of  the  second  part,  or  its  assigns,  on 
(I  mand." 

On  the  pari  of  the  appellants,  it  is  contended  that  this  guar- 
anty is  subjed  to  the  rules  applicable  to  guaranties  of  collec- 
tion, and  thus  Im-Ius  in  foreclosing  the  mortgage,  after  default, 
is  a  defense.  The  respondents  insist  that  it  is  a  guaranty  of 
payment,  and  thai  they  were  under  no  obligation  to  use  dili- 
gence in  endeavoring  to  collect  the  mortgage  debt  by  foreclos- 
ure 

The  fundamental  distinction  between  a  guaranty  of  payment 
and  one  of  collection  is,  thai  in  the  first  case  the  guarantor 
undertakes  unconditionally  thai  the  debtor  will  pay,  and  the 
creditor  may,  upon  default,  proceed  directly  againsl  the  guar- 
antor, withoul  taking  any  steps  to  collect  of  the  principal 
debtor,  and  the  omission  or  ueglecl  to  proceed  against  him  is 
not  (excepl  under  special  circumstances)  any  defense  to  the 
guarantor;  while  in  the  second  case  the  undertaking  is  that  if 
the  demand  cannol  be  collected  by  legal  proceedings  the  guar- 
antor will  pay,  and  consequently  legal  proceedings  against  the 
principal  debtor,  and  a  failure  to  collect  of  him  by  those  means 
are  conditions  precedenl  to  the  liability  of  the  guarantor;  and 
1"  these  the  law,  as  established  by  numerous  decisions,  attaches 
the  further  condition  thai  due  diligence  be  exercised  by  the 
creditor  in  enforcing  his  legal  remedies  against  the  debtor. 

*  See  Sees.  883-884,  Vol.  6,  Cyclopedia  of  Law. 


McMURRAY  ET  AL.  v.  NOYES.  251 

These  rules  are  well  settled  and  are  not  controverted,  and  the 
only  question  is  to  which  class  of  guaranties  the  one  now  before 
us  belongs. 

It  is  apparent  upon  the  face  of  the  instrument  that  the  under- 
taking of  the  defendant  was  not  an  unconditional  one  that  the 
mortgagor  should  pay;  or  that  the  guarantor  would  pay  on  de- 
fault of  the  mortgagor,  but  only  that  the  guarantor  would  pay, 
in  case  of  a  deficiency  arising  on  a  foreclosure  and  sale.  The 
foreclosure  and  sale  were  consequently  conditions  precedent, 
and  the  general  principle  is,  that  wherever  a  condition  prece- 
dent is  to  be  performed  for  the  purpose  of  establishing  the  lia- 
bility of  a  surety  or  guarantor,  such  condition  must  be  per- 
formed in  good  faith  and  with  due  diligence.  It  is  upon  this 
principle  that,  in  case  of  a  guaranty  of  collection,  diligence  is 
required  of  the  creditor. 

I  am  unable  to  see  why  this  principle  is  not  applicable  to  the 
guaranty  now  in  controversy.  The  respondents  claim  that  it  is 
an  undertaking  to  pay  any  deficiency  which  may  arise,  and  is, 
therefore,  a  guaranty  of  payment  of  the  mortgage  debt  to  that 
extent,  and  to  be  governed  by  the  same  rules  as  if  it  had  been 
a  guaranty  of  payment  of  the  whole  mortgage.  But  the  fallacy 
of  this  reasoning  is  that  it  is  not  an  unconditional  guaranty 
that  the  mortgagor  will  pay  the  mortgage  debt,  or  any  part  of 
it,  but  only  that  after  the  remedy  against  the  land  has  been 
exhausted,  and  the  deficiency  ascertained  by  foreclosure  and 
sale,  the  guarantor  will  pay  such  deficiency.  The  only  differ- 
ence between  this  and  an  ordinary  guaranty  of  collection  is, 
that  in  the  latter  case  the  undertaking  is  that  after  it  has  been 
ascertained  by  all  such  legal  proceedings  as  the  case  admits  of, 
that  the  demand  cannot  be  collected,  the  guarantor  will  pay; 
while  in  the  present  case  the  only  proceedings  which  the  credi- 
tor is  bound  to  adopt  are  a  foreclosure  of  the  mortgage  and 
sale  of  the  mortgaged  lands.  To  that  extent  the  condition  pre- 
cedent exists  alike  in  both  eases,  and  the  duty  of  exercising  due 
diligence  attaches,  there  being  nothing  in  the  instrument  quali- 
fying or  dispensing  with  it. 

The  case  of  Goldsmith  v.  Brown  (35  Barb.  484)  is  relied  upon 
by  the  respondents  as  sustaining  their  position.  In  that  case 
the  covenant  was,  as  construed  by  the  court,  to  pay  the  de- 


252  LIABILITY    OF    SURETY. 

ficiency  upon  the  mortgage  debt  whenever  the  remedy  against 
the  lands  mortgaged  should  have  been  exhausted  and  the  de- 
ficiency  ascertained.  The  decision  in  that  case  can  only  be  sus- 
tained by  constr  ring  the  covenant  as  waiving  diligence  in  fore- 
elosing,  and  binding  the  covenanter  to  pay  the  deficiency  with- 
out regard  to  the  time  of  the  foreclosure.  Nothing  in  the  cove- 
nant now  under  examination  has  any  relation  to  the  time  of  the 
foreclosure,  or  can  be  construed  as  waiving  diligence  required 
by  the  genera]  rules  of  law  in  performing  the  condition. 

The  delay  in  foreclosing  in  the  present  case  was  fourteen 
months  after  the  mortgage  debt  became  due.  During  upward  of 
ten  months  of  this  time  the  property  was  a  sufficient  security, 
but  afterward  the  buildings  thereon  were  destroyed  by  fire,  and 
the  value  was  reduced  below  the  amount  of  the  mortgage  debt. 
If  cannot  be  questioned  that  this  delay  was  sufficient  to  consti- 
tute laches.  In  Craig  v.  Parkis,  40  N.  Y.  181,  a  delay  of  six 
months  in  foreclosing  a  bond  and  mortgage  was  held  to  be  laches 
which  discharged  a  guaranty  of  its  collection. 

Tin'  judgment  should  be  reversed,  and  a  new  trial  ordered, 
with  costs  to  abide  the  event.    All  concur. 

Judgment  reversed. 




ROBERTS  v.  HAWKINS 

70  Mich.  566;  38  N.  W.  575.     1888. 

Error  to  Superior  Court  of  Grand  Rapids.    Assumpsit. 
Long,  J.    January  12,  1884,  one  Lyman  D.  Follett  made  his 
promissory  note  as  follows: 

"  $1,000. 

Grand  Rapids,  Mich.,  'January  12,  1884. 
One  year  after  date,  I  promise  to  pay  to  the  order  of  Helen 
M.  Roberts  one  thousand  dollars,  with  interest  at  eight  per  cent. 
per  annum.    Value  received.  Lyman  D.  Follett." 

And  defendant  signed  an  indorsement  on  the  back  thereof, 
as  follows: 


ROBERTS  v.   HAWKINS.  253 

"For  value  received,  I  hereby  guarantee  the  payment  of  the 
within.    Value  received.  L.  E.  Hawkins." 

On  the  delivery  of  this  note  to  plaintiff,  she  paid  Follett 
$1,000.  January  8,  1885,  seven  days  before  this  note  became 
due,  Follett  paid  one  year's  interest;  and  neither  at  that  time, 
nor  at  the  maturity  of  the  note,  was  the  same  presented  to  Fol- 
lett or  defendant  for  payment.  No  notice  of  non-payment  was 
given  defendant  then  or  at  any  time  prior  to  June  £,  1887. 
January  15,  1886,  Follett  paid  the  interest  for  the  next  year, 
and  January  17,  1887,  for  the  year  following.  About  June  8, 
1887,  the  note  being  then  two  years  and  five  months  overdue, 
it  was  first  presented  to  defendant,  and  payment  demanded 
and  refused.     August  13  this  suit  was  brought. 

On  the  trial,  plaintiff,  having  proved  the  note  and  guaranty, 
and  its  non-payment,  rested.  Defendant  then  sought  to  make 
his  defense  as  pleaded,  and  offered  to  show — 

1.  That  he  was  an  accommodation  guarantor,  without  con- 
sideration or  security. 

2.  That,  at  or  about  the  maturity  of  the  note,  he  inquired  of 
the  maker  of  the  note  if  it  was  paid,  and  was  told  it  was. 

3.  That  neither  at  the  maturity  of  the  note,  nor  at  any  sub- 
sequent time,  prior  to  June  8,  1887,  was  any  notice  of  the  non- 
payment of  this  note  given  to  defendant,  nor  any  demand  made 
on  him  for  the  payment  thereof. 

4.  That  at  the  maturity  of  this  note,  and  for  some  consider- 
able time  thereafter — at  least  a  year — Follett,  the  maker  of  the 
note,  was  solvent,  and  had  property  out  of  which  defendant 
could  have  procured  him  to  pay  the  note  or  obtained  security. 

5.  That  when  defendant,  on  June  8,  1887,  learned  of  the  non- 
payment of  this  note,  the  maker  was  insolvent,  out  of  the  juris- 
diction, and  that  he  could  then  obtain  no  security  or  payment. 

The  court  directed  a  general  verdict  for  plaintiff  on  all  the 
counts  of  the  declaration.  Judgment  being  entered  on  the  ver- 
dict in  favor  of  plaintiff  for  the  amount  of  the  note  and  in- 
terest, defendant  brings  the  case  into  this  Court  by  writ  of 
error. 

The  declaration  contains  three  counts.  The  first  alleges  the 
guaranty,  demand  of  the  maker  at  maturity,  non-payment,  and 


■j;,  I  LIABILITY    OF    SURETY. 

notice  of'  said  demand  and  non-payment  to  defendant  at  ma- 
turity. 

The  second  alleges  the  guaranty,  the  refusal  by  maker  to 
pay  ,,t  maturity,  and  notice  to  defendant,  at  maturity,  of 
maker's  refusal. 

The  third  is  the  common  count  in  assumpsit,  with  copy  of 
note  annexed,  and  an  alleged  indorsement  on  back  of  L.  E.  Haw- 
kins, without  any  guaranty  over  it. 

The  plea  is  the  general  issue,  with  notice  of  the  defense  of 
release  by  plaintiff's  failure  to  give  notice  of  non-payment  to 
defendant,  and  the  consequent  damage  and  loss  to  him  thereby. 

I,  is  claimed  thai  the  courl  erred  in  receiving  the  note  and 
guaranty  in  evidence  under  the  third  count  in  plaintiff's  dec- 
laration, for  the  reason  that  the  note  and  guaranty  offered  were 
not  the  note  and  guaranty  set  forth  in  that  count;  that  the  con- 
tra,i  Bel  out  in  plaintiff's  third  count  was  that  defendant  had 
indorsed  his  name  in  blank  on  the  back  of  the  note,  not  payable 
to  his  order;  and  that  this  would  make  him  a  maker  of  the  note, 
and  liable  as  such,  while  the  note  offered  had  a  guaranty  of  pay- 
ment indorsed  thereon.  Defendant  claimed  that  this  was  a 
variance,  and  that  the  court  should  have  excluded  the  guaranty 
under  this  third  count,  and  confined  the  verdict  to  a  recovery 
under  the  first  two  counts. 

As  we  view  the  case,  however,  this  objection  has  no  force. 
The  plaintiff  being  entitled  to  recover  under  the  first  and  second 
counts  of  the  declaration,  the  defendant  was  not  prejudiced  in 
the  course  taken  by  the  court  in  not  withdrawing  all  considera- 
tion of  the  case  under  the  third  count.  The  declaration  was 
sufficient  in  the  first  two  counts  to  allow  a  recovery  thereunder. 

The  child'  error  complained  of  is  the  exclusion  of  the  entire 
defense,  and  the  direction  of  a  verdict  for  plaintiff.  On  the  trial 
the  plaintiff  proved  by  a  witness  the  application  for  the  loan, 
the  Loaning  of  the  money,  the  giving  of  the  note  and  guaranty, 
and,  after  reading  the  note  and  guaranty  in  evidence,  rested. 
The  defendant  was  then  called  and  sworn  as  a  witness  in  his 
own  behalf,  and   was  asked  by  his  counsel: 

"Q.  When  that  note  became  due,  in  January,  1885, — Janu- 
ary ir>,  was  any  notice  given  you  of  the  fact  that  it  remained 
unpaid?" 


ROBERTS  v.  HAWKINS.  255 

To  this  question  counsel  for  plaintiff  objected,  that  the  same 
was  irrelevant  and  immaterial;  that  the  defendant  was  not  an 
indorser  nor  guarantor  of  collection,  but  of  payment  of  the 
note. 

Counsel  for  the  defendant  then  offered  to  show  by  the  witness 
that  he  had  no  notice  of  the  non-payment  of  the  note  prior  to 
June  8,  1887;  that  he  was  an  accommodation  guarantor  with- 
out security;  that,  at  or  near  the  maturity  of  the  note,  he  in- 
quired of  the  maker,  and  was  informed  that  it  was  paid,  that,  at 
the  time,  the  maker  of  the  note  was  solvent,  and  for  some  con- 
siderable time  thereafter — probably  a  year — and  that  the  de- 
fendant could,  if  he  had  any  knowledge  of  its  non-payment, 
have  secured  himself,  or  procured  the  maker  to  pay  it;  that, 
when  the  defendant  learned  of  the  non-payment  of  the  note, 
the  maker  was  insolvent,  and  out  of  the  State,  and  no  security 
could  have  been  obtained  by  the  defendant;  the  counsel  then 
saying— 

"That  this,  of  course,  is  the  line  of  defense  marked  out  by 
the  notice  in  the  pleadings.  It  is  all  covered  by  my  brother's 
argument;  and,  if  we  have  no  right  to  show  that  defense,  then, 
of  course,  there  remains  nothing  but  for  the  court  to  direct  a 
verdict  for  the  amount  of  the  note,  and  interest." 

The  court  sustained  the  objection,  and  directed  a  verdict  for 
plaintiff. 

In  considering  the  case,  the  defendant's  offer  to  prove  this 
state  of  facts  must  be  taken  as  true.  Clay,  etc.,  Ins.  Co.  v. 
Manufacturing  Co.,  31  Mich.  356.  Under  this  offer  by  the  de- 
fendant, the  issue  is  made :  Is  a  person  not  being  a  party  to  a 
promissory  note,  who  at  its  date  and  before  delivery,  and  for  the 
purpose  of  having  a  loan  made  upon  the  strength  of  his  guar- 
anty, guarantees  the  payment  of  such  note2  liable  thereon  ir 
case  the  note  is  not  paid  at  maturity,  without  notice  of  non- 
payment having  been  given  to  him  by  the  holder  at  the  maturity 
of  the  note,  or  within  a  reasonable  time  thereafter;  or  in  case 
notice  is  not  given,  and  no  proceedings  taken  to  collect  the  note 
from  the  maker,  and  the  maker  of  the  note,  at  the  maturity 
thereof,  was  solvent,  and  subsequently,  and  before  suit  is 
brought  on  the  guaranty,  becomes  insolvent,  can  such  guarantor, 
when  such  action  is  brought  against  him,  set  up  such  insolvency 


256  LIABILITY    OF    SURETY. 

as  a  defense?  The  defense  being  based  on  plaintiff's  ladies  in 
iving  notice  to  the  defendanl  of  the  non-payment  of  this 
note  at  maturity,  and  the  consequent  damage  to  defendant 
thereby,  the  correctness  of  the  court's  ruling  depends  on  whether 
or  nut  there  rested  on  the  plaintiff  the  duty  to  give  such  notice 
under  any  circumstances. 

The  defendant  claims  that  his  liability  existed  only  on  the 
happening  of  a  contingency  and  the  performance  of  a  condi- 
tion; thai  whether  or  not  that  contingency  happened,  or  condi- 
tion was  performed,  was  matter  peculiarly  within  the  knowledge 
of  the  plaintiff,  and  not  within  his  own;  and  that  if  plaintiff 
intended  to  assert  the  performance  of  the  condition,  or  the 
happening  of  the  contingency,  whereby  alone  defendant  was  to 
become  liable,  it  was  her  duty  to  do  so  within  a  reasonable  time, 
and,  in  any  event,  before  the  maker  of  the  note  became  insolvent 
and  a  fugitive;  that  her  neglect  to  do  so,  and  the  damage  to 
him  thereby,  has  rele«J3ed  him  from  the  obligation  of  his  con- 
ditional contract. 

The  position,  however,  of  a  guarantor  of  payment,  as  between 
him  and  the  maker  of  the  note,  is  that  of  a  surety.  It  is  a  com- 
mon-law contract,  and  not  a  contract  known  to  the  law-merchant. 
It  is  an  absolute  promise  to  pay  if  the  maker  does  not  pay,  and 
the  right  of  action  accrues  against  the  guarantor  at  the  moment 
the  maker  fails  to  pay.  The  guarantor  would  not  be  discharged 
by  any  neglect  or  even  refusal  on  the  part  of  the  holder  of  the 
note  to  prosecute  the  principal,  even  if  the  maker  was  solvent 
at  the  maturity  of  the  note,  and  subsequently  became  insolvent; 
and  the  fact  that  no  notice  of  non-payment  was  given  the  guar- 
antor at  the  maturity  of  the  note,  or  at  any  time  before  bringing 
suit,  would  not  affect  the  rights  of  the  holder  of  the  note  against 
the  guarantor.  The  guarantor's  remedy  was  to  have  paid  the 
aote,  and  taken  it  up,  and  himself  proceeded  against  the  maker. 

A  guaranty  is  held  to  be  a  contract  by  which  one  person  is 
bound  to  another  for  the  due  fulfillment  of  a  promise  or  engage- 
menl   of  a  third  party.     2  Pars.  Cont.  3. 

The  contract  or  undertaking  of  a  surety  is  a  contract  by  one 
person  to  be  answerable  for  the  payment  of  some  debt,  or  the 
performance  of  some  act  or  duty,  in  case  of  the  failure  of  an- 
other person  who  is  himself  primarily  responsible  for  the  pay- 


ROBERTS  v,   HAWKINS.  257 

merit  of  such  debt  or  the  performance  of  the  act  or  duty.  3 
Add.  Cont.  Sec.  1111 ;  3  Kent,  Comm.  121 ;  Wright  v.  Simpson, 
6  Ves.  734. 

In  the  case  of  Pain  v.  Packard,  13  Johns.  174  (decided  in 
1816),  it  was  held  that  if  the  surety  call  upon  the  creditor  to 
collect  the  debt  of  the  principal,  and  he  disregard  that  request, 
and  thereby  the  surety  is  injured,  as  by  the  subsequent  insol- 
vency of  the  principal,  the  surety  was  thereby  discharged.  A 
directly  contrary  decision  was  given  by  Chancellor  Kent,  upon 
argument  and  full  consideration,  the  following  year.  King  v. 
Baldwin,  2  Johns.  Ch.  554.  Two  years  later  the  last  decision 
was  reversed  by  the  court  of  errors  by  casting  vote  of  the  pre- 
siding officer,  a  layman,  and  against  the  opinion  of  the  ma- 
jority of  the  judges.     King  v.  Baldwin,  17  Johns.  384. 

In  the  case  of  Brown  v.  Curtiss,  2  N.  Y.  226  (decided  in 
1849),  the  action  was  brought  against  the  guarantor  of  a  promis- 
sory note.  On  the  trial  it  was  admitted  tha.t  there  had  been  no 
demand  of  the  maker,  nor  any  notice  of  non-payment,  and  the 
note  was  dated  April  2,  1838,  and  payable  six  months  after  the 
date.  The  suit  was  brought  against  the  guarantor  in  September, 
1845.  The  defendant  offered  to  prove  that,  from  the  time  the 
note  fell  due  until  the  latter  part  of  1843,  the  maker  was  able  to 
pay  the  note ;  that  he  then  failed,  and  was  insolvent  at  the  time 
of  the  commencement  of  the  suit,  and  still  remained  so.  This 
evidence  was  objected  to,  and  excluded,  and  verdict  directed  for 
plaintiff.     The  court  (at  p.  227)  says: 

"The  undertaking  of  the  defendant  was  not  conditional,  like 
that  of  an  indorser;  nor  was  it  upon  any  condition  whatever. 
It  was  an  absolute  agreement  that  the  note  should  be  paid  by 
the  maker  at  maturity.  "When  the  maker  failed  to  pay,  the  de- 
fendant's contract  was  broken,  and  the  plaintiff  had  a  complete 
right  of  action  against  him.  It  was  no  part  of  the  agreement 
that  the  plaintiff  should  give  notice  of  the  non-payment,  nor 
that  he  should  sue  the  maker,  or  use  any  diligence  to  get  the 
money  from  him.  *  *  *  Proof  that  when  the  note  became 
due,  and  for  several  years  afterwards,  the  maker  was  abun- 
dantly able  to  pay,  and  that  he  had  since  become  insolvent,  would 
be  no  answer  to  this  action.  The  defendant  was  under  an  abso- 
lute agreement  to  see  that  the  maker  paid  the  note  at  maturity. 


258  LIABILITY    OF    SURETY, 

"If  the  defendant  wished  to  have  him  sued,  he  should  have 
taken  up  the  note,  and  broughl  the  suit  himself.  The  plaintiff 
was  under  no  obligation  to  institute  legal  proceedings." 

The  weighl  oi  authority,  both  in  this  country  and  in  England, 

sustains  this  doctrine,   and   we  think   with   much  good  reason, 

Bellows  v   Lovell,  5  Pick    310;  Davis  v.  Huggins,  3  N.  H.  231; 

v    Webster,  L5  Me.  249;  Dennis  v.  Eider,  2  McLean,  451. 

In  Train  v  Jones,  11  Vt    446,  it  is  said: 

"An  absolute  guaranty  that  the  debt  of  a  third  person  shall 
be  paid,  or  that  he  shall  pay  it,  imposes  the  same  obligation 
upon  the  guarantor.  In  either  case,  it  is  an  absolute  guaranty  of 
the  sum  stipulated,  and  the  creditor  is  not  hound  to  use  dili- 
gence, or  to  give  reasonable  notice  of  non-payment."  Noyes  v. 
Nichols,  28  Vt.  174. 

In  Bloom  v.  Warder,  13  Neb.  478  (14  N.  W.  Rep.  396), 
which  was  an  action  against  the  guarantors  of  payment  of  a 
promissory  note,  the  court  says: 

"This  is  an  absolute  contract,  for  a  lawful  consideration,  that 
the  money  expressed  in  the  note  shall  be  paid  at  maturity  thereof 
at  all  events,  and  depends  in  no  degree  upon  a  demand  of  pay- 
ment of  the  maker  of  the  note,  or  any  diligence  on  the  part  of 
the  holder." 

Mere  passiveness  on  the  part  of  the  holder  will  not  release 
the  guarantor,  even  if  the  maker  of  the  note  was  solvent  at  its 
maturity,  and  thereafter  became  insolvent.  Breed  v.  Hillhouse, 
7  Conn.  528;  Bank  v.  Hopson,  53  Conn.  454  (5  Atl.  Rep.  601)  ; 
Foster  v.  Tolleson,  13  Rich.  Law,  33;  Machine  Co.  v.  Jones,  61 
Mo.  409;  Barker  v.  Scudder,  56  Id.  276;  Norton  v.  Eastman, 
4  Greenl.  52]  ;  Brown  v.  Curtiss,  2  N.  Y.  225;  Allen  v.  Right- 
mere,  20  Johns.  365;  Bank  v.  Sinclair,  60  N.  II.  100;  Gage  v. 
Hank,  79  111.  62;  Hungerford  v.  O'Brien,  37  Minn.  306  (34  N. 
W.  Rep.  161). 

It  follows  that,  this  being  an  absolute  undertaking  on  the  part 
of  the  defendant  as  guarantor  to  pay  the  amount  of  this  note  at 
maturity  in  the  event  of  the  default  of  payment  by  the  princi- 
pal, the  guarantor  could  not  demand  any  diligence  on  the  part 
of  the  holder  of  the  note  to  collect  the  same  from  the  principal. 
It  was  his  duty  to  perform  his  contract — that  is,  to  pay  the  note 
upon  defaull  of  the  principal,  and  it  is  no  answer  for  him  to  say 


TAYLOR  v,  WETMORE.  259 

that  the  principal  was  solvent  at  the  maturity  of  the  note,  and 
that  the  same  could  then  have  been  collected  of  him  by  the 
holder,  and  that  he  has  since  become  insolvent.  If  he  wished  to 
protect  himself  against  loss,  he  should  have  kept  his  engage- 
ment with  the  holder  of  the  note,  paid  it  upon  default  of  the 
principal,  taken  up  the  note,  and  himself  prosecuted  the  party 
for  whose  faithful  performance  of  the  contract  he  became 
liable. 

The  court  properly  directed  the  verdict  for  the  plaintiff;  and 
the  judgment  of  the  court  below  must  be  affirmed,  with  costs. 

The  other  Justices  concurred. 


Liability  of  Guarantor  on  General  and  Particular  Guaranty  * 

TAYLOR  ET  AL.  v.  WETMORE  ET  AL. 

10  Ohio  491.     1841. 

This  is  an  action  of  assumpsit  from  the  county  of  Portage. 

The  declaration  contains  two  special  counts.  In  the  first,  it 
is  averred  that  one  C.  D.  Farrar,  on  November  26,  1836,  being 
desirous  of  purchasing  a  general  assortment  of  goods  in  the 
city  of  Pittsburg,  for  a  retail  country  store,  on  a  credit,  and  be- 
ing unknown  to  the  business  men  of  said  city,  applied  to  the 
defendants,  Messrs.  Wetmores,  then  doing  business  at  Cuyahoga 
Falls,  in  Portage  county,  for  a  general  letter  of  credit,  directed 
to  some  one  or  more  of  their  correspondents  in  the  said  city  of 
Pittsburg,  by  means  of  which  the  said  Farrar  might  be  enabled 
to  make  his  purchases;  and  the  said  defendants  upon  such  ap- 
plication, made  and  delivered  to  Mr.  Farrar  a  letter  of  credit, 
or  written  guaranty,  addressed  to  Messrs.  A.  D.  McBride  &  Co., 
merchants  in  Pittsburg,  in  the  words  following: 

"Cuyahoga  Falls,  November  26,  1836. 
"Messrs.  A.  D.  McBride  &  Co. 

"Gentlemen:  Mr.  C.  D.  Farrar  has  concluded  to  purchase  a 
few  goods;  we  have  that  confidence  in  Mr.  Farrar,  that  we  will 


*  See  Sees.  888-889,  Vol.  6,  Cyclopedia  of  Law. 


260  LIABILITY    OF    SURETY. 

say   that   we  will   be   responsible  to  the  amount  of  $2,000  for 
goods  delivered  him.  We  are  truly, 

•c.  W.  &  S.  D.  Wetmore." 

A  Hi  1  which  said  letter,  the  plaintiffs  aver  was  taken  by  Mr. 
Farrar,  and  presented  to  Messrs.  McBride  &  Co.  at  Pittsburg, 
who  retained  it.  as  security  for  themselves  and  such  other  mer- 
chants in  the  said  city,  as  should,  at  that  time  and  on  the  faith 
of  said  guaranty,  sell  goods  on  credit  to  the  said  Farrar. 

It  is  also  averred  that  Mr.  Farrar  was  unable  to  obtain  a  gen- 
eral assortment  of  goods  from  the  house  of  the  Messrs.  Mc- 
Brides,  whose  business  was  confined  to  that  of  grocers,  and 
therefore  he  made  application  in  the  plaintiffs,  upon  the  strength 
of  the  said  guaranty,  then  in  the  hands  of  McBride  &  Co.  re- 
ferring  the  plaintiffs  to  the  house  of  McBride  &  Co.  and  to  the 
said  guaranty;  that  the  plaintiffs  did  in  fact  call  upon  McBride 
&  Co.,  examined  the  letter  of  credit,  and  being  satisfied  with 
their  statements  in  regard  to  the  responsibility  of  the  defend- 
ants, and  of  the  guaranty,  in  consideration  thereof,  sold  and 
delivered  to  Mr.  Farrar,  upon  a  credit  of  six  months,  a  bill  of 
dry  goods,  amounting  to  $760.75;  of  all  which  the  defendants 
had  dm-  and  timely  notice.  The  plaintiffs  then  aver  that  the 
credil    has  expired,  and  that   Farrar  has  omitted  to  pay,  etc. 

The  second  count  states  that  on  November  6,  1836,  etc.,  in  con- 
sideration that  the  plaintiffs  at  the  special  instance  and  request 
of  the  defendants,  would  sell  to  said  Farrar,  on  credit,  all  such 
goods  as  said  Farrar  should  have  occasion  for  and  require  of 
said  plaintiff's  in  their  trade  and  business  of  wholesale  dry 
goods  merchants,  they,  the  defendants,  undertook  and  promised 
to  pay  the  plaintiffs  therefor;  this  count  then  avers  the  sale  ami 
delivery  of  goods  to  the  amounl  of  $760.75,  on  a  certain  credit, 
agreed  upon  between  the  ..parties,  that  the  credit  had  expired, 
that  Farrar  had  not  paid,  of  which  the  defendants  had  notice; 
avers  their  liability,  and  breach  in  the  non-payment. 

To  this  declaration  the  defendants  filed  their  plea  of  the 
general  issue. 

The  testimony  submitted  on  the  part  of  the  plaintiffs,  proves: 
1.  The  execution  and  delivery  of  this  mercantile  guaranty,  as 
set  forth  in  the  first  count  of  the  declaration;  and  2.     That  a 


TAYLOR  v.  WETMORE.  261 

few  days  after  its  date,  it  was  handed  to  the  firm  of  McBride 
&  Company,  who  not  being  dealers  in  dry  goods,  the  witness 
(who  was  a  partner  of  the  last  mentioned  firm),  went  with  Mr. 
Farrar  to  the  plaintiffs,  and  the  said  guaranty  was  shown  to 
Mr.  Taylor,  one  of  the  plaintiffs;  the  witness  stated  to  Air. 
Taylor,  that  he  had  sold  a  bill  of  groceries  on  the  strength  of 
the  letter,  and  Mr.  Taylor  then  said  he  would  sell  a  bill  of  goods 
on  the  strength  of  the  same,  and  Mr.  Farrar  accordingly  obtained 
the  goods.  The  clerk  and  salesman  of  the  plaintiffs  prove  the 
amount  of  the  goods  sold  to  be  $760.75,  and  on  a  eredit  of  six 
months. 

The  evidence  on  the  part  of  the  defendants  proves  that  Farrar 
was  in  business  at  Cuyahoga  Falls  from  December,  1836,  until 
April  or  May,  1837,  when  he  transferred  all  his  goods  to  the  de- 
fendants, and  closed  his  store.  That  he  paid  none  of  his  debts 
in  Pittsburg.  That  in  September,  1837,  the  witness  was  present 
at  a  conversation  between  Taylor,  one  of  the  plaintiffs,  and  C. 
W.  Wetmore,  one  of  the  defendants,  in  which  the  defendant 
asked  Taylor,  if  he  considered  him  responsible,  either  legally, 
morally,  or  honorably,  for  the  goods  Farrar  had  purchased  of 
him.  To  which  Taylor  replied  he  did  not,  but  that  the  defend- 
ants had  more  goods  in  their  possession,  received  of  Farrar,  than 
they  were  holden  to  the  house  of  McBride  for;  that  the  goods 
would  amount  to  $500  or  $700.  To  this  the  defendant  replied 
he  did  not  know  how  that  was;  that  there  was  also  left  with 
them,  by  Farrar,  notes  and  accounts  to  the  amount  of  about 
$200,  and  what  they  could  not  make  up  out  of  them,  must  be 
made  up  out  of  the  goods ;  and  if  there  was  any  balance,  so  far 
as  he  was  concerned,  that  should  go  to  the  plaintiffs. 
Richard,  for  the  plaintiffs. 

Wood,  J.  Under  the  averments  in  the  declaration,  and  the 
testimony  submitted,  are  the  plaintiffs  entitled  to  judgment?— 
and  I  may  here  remark,  in  the  outset,  in  this  case,  that  I  know  of 
no  arbitrary  rule  applicable  to  actions  founded  upon  mercantile 
guaranties,  which  creates  obligations  between  the  parties  to 
which  they  have  neither  expressly  nor  impliedly  assented.  In 
all  actions  founded  in  contract,  the  agreement  as  set  forth  must 
be  proved,  or  the  circumstances  existing  between  the  parties 
must  be  such  as  to  leave  it  clearly  to  be  inferred.    In  enforcing 


262  LIABILITY    OF    SURETY. 

them,  courts  of  justice,  though  they  may  sometimes  be  confined 
by  technical  rules,  always  endeavor  to  ascertain  the  understand- 
,iikI  intentions  of  the  parties,  and  these  are  considered 
as  the  essence  of  their  agreements  in  carrying  them  into  execu- 
tion. Mercantile  guaranties  arc  either  general  or  special;  though 
a  single  letter  of  credit  may  hear  upon  its  face  both  of  these 
distinctions.  It  may  be  general,  as  to  the  whole  world,  to  whom 
the  bearer  may  be  accredited,  and  to  any  portion  of  whom,  at  his 
own  option,  he  may  make  the  guarantor  a  debtor,  and  special, 
as  to  the  amount  of  the  credit;  or  unlimited  or  general  in  the 
amount,   and   special   as   to   the    parties. 

The  first  inquiry  which  arises  here,  is,  whether  the  guaranty 
in  question  is  not  special  as  to  persons.  It  is  directed  to  the 
house  of  McBride  &  Co.,  in  the  city  of  Pittsburg,  and  nothing 
upon  its  face  evincing  an  intention  to  give  Farrar  credit,  or 
P.  incur  responsibility  with  any  other  house. 

The  counsel  Tor  the  plaintiff  here  admit,  that  a  surety  can  not 
he  held  beyond  the  terms  of  his  engagement,  but  they  insist  that 
although  it  is  addressed  only  to  McBride  &  Co.  as  it  does  not  say 
"we  will  be  responsible  to  you,"  it  is  a  letter  of  credit  to  any 
other,  who  will  advance  the  goods.  It  seems  to  us,  this  reasoning 
is  more  ingenious  than  sound.  The  guaranty  being  addressed 
to  A.  1).  McBride  &  Co.,  it  is  to  them  the  defendants  speak  when 
they  say,  "we  will  l><  responsible  to  the  amount  of  $2,000,"  and 
it  contains  no  general  terms,  by  which  either  Farrar,  or  the 
house  of  McBride,  had  the  authority  to  transfer  it  to  the  plain- 
tiffs, and  they  to  make  the  defendants  their  guarantors,  without 
their  assent,  express  or  implied. 

Judgment  for  the  def 'endants. 


MORRISON  ET  AL.  v.  ARONS  ET  AL. 
65  Minn.  321;  68  N.  W.  33.    1896. 

Action  in  the  dislrict  court  for  Ramsey  county.  The  case 
was  tried  before  Kelly,  J.,  who  ordered  judgment  against  de- 
fendant   Arons  for  $801.43,   and  against  defendants  Williams 


MORRISON    v.    ARONS.  263 

and  Hall  for  $559.50,  with  interest.     From  an  order  denying 
a  motion  for  a  new  trial  defendants  Williams  and  Hall  appealed. 

Reversed. 

Collins,  J.  Plaintiffs  entered  into  business  as  co-partners, 
and  employed  defendant  Arons  as  general  manager',  salesman, 
and  colleetor.  According  to  the  written  contract,  the  employ- 
ment was  to  continue  as  long  as  mutually  agreeable.  Arons  was 
to  receive  as  compensation  for  his  services  a  aim  equal  to  one- 
half  the  net  profits  of  the  business,  and  these  profits  were  to  be 
ascertained  as  follows: 

"During  the  existence  of  the  employment  of  said  party  of 
the  second  part,  once  each  month,  commencing  with  December 
1,  1892,  a  just  and  true  inventory  of  the  assets  and  liabilities  of 
said  firm  shall  be  taken,  and  all  accounts  which  are  considered 
bad  shall  be  charged  to  profit  and  loss,  and  from  the  residue  of 
the  accounts  due  said  firm  shall  be  deducted  five  per  cent,  of 
the  aggregate  amount  thereof  as  a  reserve  to  cover  bad  debts, 
and  the  excess  of  the  assets  over  the  liabilities  and  the  capital 
stock  of  said  firm  shall  be  determined  and  agreed  upon  as  the 
net  profits  of  said  business,  and  a  sum  equal  to  one-half  of  such 
excess  shall  then  and  there  be  credited  to  said  party  of  the 
second  part  as  and  for  his  compensation,  and  be  considered  an 
expense  of  said  business.  That  when  the  relation  between  said 
firm  and  said  party  of  the  second  part  is  extinguished,  then 
the  actual  amount  of  profit  or  loss,  as  the  case  may  be,  of  the 
business  of  said  firm,  shall  be  determined,  and,  if  there  has  been 
a  net  profit,  a  sum  equal  to  one-half  thereof  shall  be  allowed 
said  party  of  the  second  part,  and  any  errors  in  estimating  the 
net  profits  at  the  previous  stated  periods  shall  then  and  there 
be  rectified,  and,  if  said  party  of  the  second  part  shall  have 
withdrawn  more  money  from  said  firm  that  he  is  entitled  to, 
he  shall  then  and  there  forthwith  repay  the  same ;  and,  if  there 
is  any  amount  due  him  on  account  of  his  compensation,  it  shall 
then  and  there  forthwith  be  paid  him." 

Arons,  as  principal,  and  defendants  Williams  and  Hall,  as 
sureties,  entered  into  a  bond,  in  which  plaintiffs  were  obligees, 
which,  after  reciting  that  Arons  was  about  to  enter  plaintiffs' 
employ  as  general  manager,  salesman,  and  collector,  provided, 
and  was  conditioned,  that : 

"If  the  said  Charles  T.  Arons  shall  faithfully  and  honestly 
perform  all  the  duties  of  his  said  employment,  and  shall  keep 


!  LIABILITY    OF    SURETY. 

jusl  and  true  accounts  of  all  moneys  received  and  expended  and 
all  property  bought  and  sold  for  or  i  a  account  of  said  firm  by 
him  or  under  his  direction,  and  shall  faithfully  and  fully,  and  as 
often  as  required,  accounl  for  and  pay  over  to  said  firm  any 
and  all  moneys  belonging  1  hereto  collected  or  received  by  him, 
or  which  in  any  manner  come  into  bis  hands  in  the  course  of 
his  employment  by  said  firm;  and  shall  forthwith  and  on  de- 
mand repay  to  said  firm  any  and  all  moneys  he  shall  have  with- 
drawn therefrom  for  his  own  use  in  excess  of  the  compensation 
due  him  for  his  services  under  the  terms  of  his  agreement  with 
said  firm  in  that  behalf  (whether  such  moneys  shall  have  been 
so  withdrawn  with  the  consenl  of  said  firm  or  otherwise),  as 
often  as  it  shall  be  determined  that,  such  overdraft  has  been 
made,  then  the  above  obligation  to  be  void;  otherwise  to  remain 
in   full  force  and  virtue." 

This  action  was  brought  to  recover  an  amount  of  money  said 
to  be  due  on  the  bond,  and  trial  was  by  the  court.  No  evidence 
was  introduced  tending  to  show  any  other  settlement  or  account- 
ing than  thai  had  when  A  runs'  term  of  employment  ended.  In 
fact  plaintiffs  admitted  that  they  never  ascertained,  and  could 
not,  at  the  time  of  the  trial,  ascertain,  what  the  respective 
monthly  profits  of  the  business  bad  been.  At  the  conclusion  of 
the  plaintiff's  case  and  again  at  the  conclusion  of  the  entire 
case,  the  defendant  sureties  moved  the  court  to  dismiss  the  same 
as  to  them  upon  the  ground  that,  as  it  affirmatively  appeared 
from  the  evidence  and  admissions  that  no  monthly  settlements 
or  accounting  had  been  had  as  provided  for  in  the  contract  of 
employment,  the  sureties  upon  the  bond  had  been  released  from 
liability.  These  motions  were  denied,  and  the  court  made  its 
findings  of  fact  and  conclusions  of  law  ordering  judgment  in 
plaint  il'lV  favor. 

The  court  found  the  allegation  in  the  complaint  that  no  settle- 
ment or  accounting  was  had  between  the  parties  until  after 
Arons'  employment  ceased,  to  be  true.  We  agree  with  the  court 
below  in  its  construction  of  the  contract,  but  we  cannot  concur 
in  its  holding  that  the  sureties  were  not  discharged  by  the  fail- 
ure and  omission  to  have  monthly  accountings  and  settlements 
between  Arons  and  plaintiffs.  The  former  was  to  have  advanced 
to  him  $100  each  month  for  personal  expenses  and  on  account 
of  his  compensation  under  an  agreement  that,  if  this  amount, 
with  other  sums  of  money  which   came  into  his  possession,  ex- 


AETNA   INS.   CO.   v.   POWLER.  265 

eeeded  one-half  of  the  net  profits  of  the  business,  the  excess 
should  be  promptly  refunded.  What  the  profits  were,  and  the 
sum  due  to  plaintiffs,  if  anything,  were  to  be  provisionally  ascer- 
tained each  month;  and,  had  this  been  done,  it  is  quite  certain 
that  the  plaintiffs  would  have  discovered  before  the  expiration 
of  13  months  that  the  business  was  not  profitable,  while  Arons 
would  have  learned  that  he  was  far  from  earning  a  living  out 
of  it.  The  natural  result  would  have  been  for  both  parties  to 
terminate  their  contract  relation,  and  avoid  further  loss.  It  is 
evident  that  there  would  be  much  less  hesitation  on  the  part  of 
a  person  called  upon  to  become  a  surety  upon  a  bond  given  for 
the  faithful  performance  of  a  contract  with  such  conditions 
than  if  the  real  situation  was  not  to  be  ascertained  for  months. 
The  condition  in  the  employment  contract  whereby  monthly  ac- 
countings and  settlements  were  agreed  upon  was  an  exceedingly 
beneficial  one  for  all  concerned.  It  was  an  essential  feature  of 
the  contract  whereby  Arons  agreed  to  conduct  plaintiffs' 
business  enterprise  for  an  indefinite  period  of  time,  his  compen- 
sation to  be  determined  by  the  net  profits.  The  contract  of 
suretyship  was  departed  from  and  varied  when  this  provision 
was  wholly  disregarded,  and  the  case  is  brought  directly  within 
the  rule  that,  if  an  essential  condition  of  such  a  contract  is  not 
complied  with,  a  surety  is  not  bound.    A  newr  trial  must  be  had. 

Order  reversed. 


AETNA  INS.  CO.  v.  FOWLER  ET  AL. 

108  Mich.  557,  66  N.  W.  470.     1898. 

Error  to  Saginaw ;  Wilber,  J.  Submitted  January  15,  1896. 
Decided  March  11,  1896. 

Assumpsit  by  the  Aetna  Insurance  Company  against  Charles 
G.  Fowler,  Chester  Brown,  and  Gustavus  H.  Fuerbringer  upon 
an  indemnity  bond.  From  a  judgment  for  plaintiff  on  verdict 
directed  by  the  court,  defendants  Brown  and  Fuerbringer  bring 
error.     Reversed. 

Montgomery,  J.     Action  on  the  bond  of  an  insurance  agent. 


266  LIABILITY    OF    SURETY. 

Defendanl  Fowler  was  employed  as  the  agent  of  the  company  at 
Saginaw,  and  in  December,  L883,  executed  a  bond,  with  his  co- 
defendants  as  sureties,  the  conditions  being  as  follows: 

"The  condition   of  this  obligation   is  such  that  whereas  the 

above-named  Charles  (J.  Fowler  lias  been  appointed  agent  of  the 
Aetna  Insurance  Company  in  Saginaw,  Saginaw  county,  State 
of  Michigan,  who  will  receive  as  such  agent  sums  of  money  for 
premiums,  payments  of  Losses,  salvages,  collections,  or  otherwise, 
for  goods,  chattels,  or  other  property  of  the  said  insurance 
company,  and  is  to  keep  true  and  correct  accounts  of  the  same, 
pay  over  such  money  correctly,  and  make  regular  reports  of  the 
business  transacted  by  him,  to  the  said  Aetna  Insurance  Com- 
pany, and  in  every  way  faithfully  perform  the  duties  as  agent, 
in  compliance  with  the  instructions  of  the  company  through  its 
proper  officers,  and  at  the  end  of  the  agency,  by  any  cause 
whatever,  shall  deliver  up  to  the  authorized  agent  of  said  com- 
pany all  its  money.  1 ks,  and  property  due  from  or  in  pos- 
session. Xow,  then,  if  the  aforesaid  agent  shall  faithfully  per- 
form all  and  singular  the  duties  of  the  agent  of  the  Aetna  In- 
surance Company,  then  this  obligation  shall  be  null  and  void." 

The  instruction  to  agents  were  to  send  statements  of  all  busi- 
ness transacted  during  the  previous  month  as  early  as  the  12th 
of  each  month.  The  testimony  shows  that  for  three  months  prior 
to  September  1,  1893,  the  defendant  Fowler  failed  to  send  remit- 
tances, and  it  was  shown  that  it  wras  not  the  custom  of  the  com- 
pany to  insist  upon  absolute  promptness  in  remittance,  but  that 
after  three  months'  delay  it  was  the  custom  of  the  company  to 
discharge  the  delinquent,  agent.  The  testimony  further  shows 
that  in  the  latter  part  of  July  or  the  first  of  August,  1893,  the 
special  agent  of  the  company,  a  Mr.  Neal,  visited  Saginaw,  and, 
as  he  described  it,  found  the  agency  in  a  "rocky  condition;" 
and,  while  counsel  wrere  disagreed  as  to  the  effect  of  his  testi- 
mony, we  think  it  is  at  least  open  to  the  construction  that  he 
then  learned  that  Fowler  had  misappropriated  the  funds  of  the 
company,  and  invested  them  in  realty.  The  circuit  judge 
directed  a  verdict  for  the  plaintiff.  The  recovery  included  a 
shortage  in  accounts  before  August  1st,  and  a  shortage  of  $344.16 
arising  from  the  August  business. 

Two  contentions  are  made:  First,  that  it  was  the  duty  of  the 
company  to  notify  the  sureties  of  anj   delay  in  the  remittance, 


AETNA   INS.   CO.    v.   FOWLER.  267 

at  once,  and  that  the  continuance  of  the  agent  after  failure  to 
remit  in  accordance  with  the  instructions  of  the  company  to 
agents  released  the  sureties  as  to  future  transactions ;  and,  second, 
that  the  company,  on  the  discovery  of  the  misappropriation  of 
funds,  August  1st,  was  bound  to  discharge  the  agentj  or,  at  least, 
the  sureties  were  not  bound  to  respond  for  his  future  defalca- 
tions, unless,  after  being  informed  of  his  previous  acts  of  dis- 
honesty, they  consented  to  his  retention. 

We  think  that  the  court  below  correctly  ruled  that  the  mere 
fact  that  the  company  had  knowledge  that  the  agent  had  failed 
to  remit  did  not  impose  upon  it  the  duty  to  notify  the  sureties 
or  discharge  the  agent.  Watertown  Fire  Ins.  Co.  v.  Simmons, 
131  Mass.  85  (41  Am.  Rep.  196);  Atlantic,  etc.,  Tel.  Co.  v. 
Barnes,  64  N.  Y.  385  (21  Am.  Rep.  621).  The  duty  which  the 
company  owed  to  the  sureties  was  not  a  duty  of  active  vigilance, 
to  ascertain  whether  the  agent  had  been  guilty  of  fraud  (the 
sureties'  undertaking  was  a  guaranty  of  his  fidelity),  but  what 
was  due  from  the  employer  was  good  faith  to  the  sureties.  Just 
as  it  would  have  been  a  fraud  to  withhold  knowledge  of  previous 
dishonesty  of  the  agent  presumably  not  known  to  the  sureties, 
but  possessed  by  the  company,  so  it  would  be  a  breach  of  good 
faith  for  the  company  to  continue  the  agent  in  a  place  of  trust 
after  discovering  his  dishonesty  or  defalcation,  which  is  pre- 
sumptively and  in  fact  unknown  to  the  sureties,  and  without 
notifying  the  sureties  of  the  facts,  and  giving  them  an  oppor- 
tunity to  elect  as  to  whether  they  will  continue  the  risk.  This 
is  the  doctrine  of  the  leading  case  of  Phillips  v.  Foxall,  L.  R. 
7  Q.  B.  666.  The  cases  of  Watertown  Fire  Ins.  Co.  v.  Simmons 
and  Atlantic,  etc.,  Tel.  Co.  v.  Barnes  are  not  inconsistent  with 
this.  The  substance  of  the  holding  in  each  of  these  cases  is  that 
the  mere  failure  of  remittance  does  not  necessarily  amount  to 
notice  of  dishonesty  on  his  part,  and  that  applies  to  the  present 
case  as  regards  the  charges  occurring  before  August.  There  is 
no  evidence  that  prior  to  August  the  company  had  actual  notice 
that  Fowler  had  converted  any  of  the  funds  to  his  own  use,  or 
was  more  than  negligent  in  remitting  or  collecting  the  premi- 
ums; but  as  to  the  transactions  in  August  the  case  is  different. 
Under  section  9191,  2  How.  Stat.,  it  is  made  an  offense  for  an 
insurance  agent  to  receive  and  invest  money  of  the  company 


LIABILITY  OF  SURETY. 

without  its  assent;  and,  as  we  before  stated,  we  think  there  was 
testimony  tending  to  show  notice  to  the  company  about  the  1st 
of  AuiMist  that  Fowler  had  invested  the  funds  of  the  company 
in  realty.  It'  the  company,  through  its  special  agent,  then  knew 
this  fact,  it  cannot  be  said  not  to  have  notice  of  the  dishonesty 
ol'  the  agenl  ;  and,  if  it  had  such  ootice,  it  was  the  duty  of  the 
company  not  to  longer  trust  its  funds  with  the  agent  until  the 
sureties  had  consented,  witli  knowledge  of  the  facts,  to  be  held 
responsible  for  the  acts  of  a  dishonest  agent.  See,  further,  2 
Brandt,  Sur.  §423;  Connecticut  Mut.  Life  Ins.  Co.  v.  Scott,  81 
Ky.  540. 

Judgment  r<V(rs<<I,  and  a  new  trial  ordered. 
The  other  Justices  concurred. 


Liability  of  Surety  whin   Principal  Discharged  or  not  Origin- 

ally  Bound* 

RUSSELL  v.  ANNABLE. 
109  Mass.  72.     1871. 

Contract,  brought  August  3,  1870,  against  one  of  the  sure- 
ties  in  the  following  bond  given  under  the  Gen.  Sts.  c.  123, 
i;  I'll,  to  dissolve  an  attachment: 

"Know  all  men  by  these  presents,  that  Erastus  Dennett  and 
('has.  K.  Pottle,  of  Boston  in  the  county  of  Suffolk,  as  principal, 
and  George  M  Stevens,  of  Cambridge,  and  John  F.  Annable, 
of  Somerville,  in  the  county  of  Middlesex,  as  surety,  are  holden 
and  stand  (irmly  bound  ami  obliged  unto  Arthur  W.  Russell,  of 
Cambridge  in  said  Middlesex,  in  the  full  and  just  sum  of  two 
hundred  dollars,  to  be  paid  unto  the  said  Russell,  his  executors, 
administral  irs  or  assigns,  to  which  payment,  well  and  truly  to 
be  made,  we  bind  ourselves,  our  heirs,  executors  and  adminis- 
trators, jointly  and  severally,  firmly  by  these  presents,  sealed 
with  our  seals,  dated  the  twenty-second  day  of  July  in  the  year 
of  our  Lord  one  thousand  eight  hundred  and  sixty-nine.  The 
condition  of  this  obligation  is  such,  that,  whereas  the  said  Russell 
has  caused  the  goods  and  estate  of  said  Dennett  &  Pottle,  to  the 

*  See  Sec.  894,  Vol.  6,  Cyclopedia  of  Law. 


RUSSELL  v.  ANNABLE.  269 

value  of  two  hundred  dollars,  to  be  attached  on  mense  process 
in  a  civil  action,  by  virtue  of  a  writ  bearing  date  the  21st  day 
of  July,  A.  D.  1869,  and  returnable  to  the  superior  court  for 
civil  business  to  be  holden  at  said  Boston  within  and  for  the 
county  of  Suffolk  on  the  first  Tuesday  of  October  next,  in  which 
said  writ  the  said  Arthur  W.  Russell  is  plaintiff,  and  the  said 
Erastus  Dennett  and  Charles  R.  Pottle  the  defendants,  and 
whereas  the  said  defendants  wish  to  dissolve  the  said  attachment 
according  to  the  provisions  of  the  General  Statutes  in  such 
cases  made  and  provided ;  Now,  therefore,  if  the  above  bounden 
Dennett  and  Pottle  shall  pay  to  the  plaintiff  in  said  action  the 
amount,  if  any,  which  he  shall  recover  therein,  within  thirty 
days  after  the  final  judgment  in  said  action,  then  the  above 
written  obligation  shall  be  null  and  void,  otherwise  to  remain 
in  full  force  and  virtue. 

"Dennett  &  Pottle,  [seal] 
"George  M.  Stevens,  [seal] 
"John  F.  Annable,   [seal]" 
"Signed,  sealed  and  delivered 
in  presence  of 

"Edward  Raymond." 

The  declaration  alleged  that  the  plaintiff  at  said  October  term 
1869  of  the  superior  court  duly  entered  the  action  named  in  the 
bond,  and  such  proceedings  wTere  had  therein  that  he  obtained 
judgment  against  said  Dennett  &  Pottle  at  April  term  1870  for 
$110  damages  and  $21.49  costs,  and  no  part  of  said  judgment 
had  been  paid,  though  the  defendant  had  often  been  requested  to 
pay  the  same,  and  the  defendant  owed  him  the  amount  of  said 
judgment  and  the  costs  subsequently  accrued  thereon.  The  an- 
swer denied  each  and  every  allegation  of  the  plaintiff. 

Trial  in  the  superior  court  before  Scudder,  J.,  who  by  con- 
sent of  the  parties  reported  the  following  case  before  verdict: 
"This  was  an  action  on  a  bond,  of  which  a  copy  is  annexed.  It 
appeared  that  Erastus  Dennett  and  Charles  R.  Pottle  were  co- 
partners, under  the  firm  name  of  Dennett  &  Pottle,  and  that  the 
execution  of  the  bond,  as  to  the  principal,  was  by  one  of  them. 
It  was  contended  by  the  defendant  that  the  bond  was  void  upon 
its  face ;  also  that  there  was  no  legal  execution  of  it  by  the  prin- 
cipals, and  therefore  it  was  void  as  to  the  defendant.  If  these 
objections  are  valid,  then  judgment  is  to  be  for  the  defendant;  if 
invalid,  then  judgment  for  the  plaintiff,  $138.83,  with  interest 
from  June  24,  1870,  being  the  date  of  original  judgment  and 


270  LIABILITY   OF   SURETY. 

costs.  The  officer's  return  on  the  original  writ  and  judgment 
may  be  referred  to.  The  execution  of  the  bond  by  the  defend- 
ant was  admitted."  The  return  of  the  officer  thus  referred  to, 
certified  thai  the  property  attached  by  him  for  dissolution  of 
which  attachmenl  the  bond  was  given,  was  property  of  Dennett 
&  Pottle,  and  thai  he  took  the  bond  "of  said  Dennett  &  Pottle, 
with  George  .M.  Stevens  and  John  P.  Amiable  as  sureties." 

A.mes,  J.  It  is  well  settled  that  one  partner  cannol  bind  his 
associates  by  affixing  his  signature,  in  the  name  and  style  of  the 
firm,  to  an  instrument  under  seal.  To  make  such  a  transaction 
binding  it  must  appeal-  that  there  was  cither  a  previous  author- 
ity, or  a  subsequent  ratification  on  the  part  of  the  other  part- 
ners, adopting  the  signature  as  binding  upon  them.  Cady  v. 
Shepard,  11  Pick.  400;  Van  Deusen  v.  Blum,  18  Pick.  229; 
Swan  v.  Stedman,  4  Met.  548;  Dillon  v.  Brown,  11  Gray,  179. 
The  report,  in  this  case  presents  no  evidence  of  any  previous 
authority  or  subsequent  ratification,  and  it  follows  that  the  bond 
is  nut  so  executed  as  to  bind  the  members  of  the  firm. 

The  bond  purports  to  he  the  joint  and  several  contract  of  cer- 
tain pm-sons  named  therein  as  principals^  and  the  defendant  and 
George  M  Stevens  a.s  sureties.  The  defendant's  undertaking  is 
only  that  the  principal  obligors  shall  fulfill  the  obligation  which 
by  the  terms  of  the  bond  they  have  assumed.  But  if  the  bond 
was  not  binding  upon  both  Dennett  and  Pottle,  (as  it  was  not, 
lor  want  of  due  and  proper  execution  of  the  instrument  on  their 
part,)  they  assumed  no  obligation,  and  it  was  not  binding  upon 
the  sureties.  It  was  essential  to  the  bond  that  the  principals 
should  he  parties  to  it;  it  is  recited  that  they  are  so,  and  the 
instrument  is  incomplete  and  void  without  their  signature.  The 
remedy  of  sureties  againsl  their  principals  might  be  greatly  em- 
barrassed, if  such  an  instrument  as  this  should  he  held  binding. 
There  is  nothing  to  estop  any  member  of  the  firm,  who  did  not, 
sign  it.  from  denying  that  he  was  a  party  to  it,  and  it  was  no 
part  of  the  defendant's  contract  that  he  should  be  surety  for  one 
member  of  the  firm,  and  no1  for  both.  The  instrument  is  incom- 
plete  wilhout  the  signature  of  each  partner,  or  proof  that  the  sig- 
nature affixed  had  the  assent  and  sanction  of  each  of  them.  The 
sureties  on  a  bond  are  not  holden,  if  the  instrument  is  not  ex- 
ecuted   by    the    person    whose  name   is   stated   as  the   principal 


SAWYER    v.    BROWNELL.  271 

therein.  It  should  be  executed  by  all  the  intended  parties. 
Bean  v.  Parker,  17  Mass.  591;  Wood  v.  Washburn,  2  Pick.  24. 

The  instrument,  being  found  incapable  of  taking  effect  as 
a  specialty,  cannot  operate  as  a  simple  contract.  Cases  have  in- 
deed arisen,  in  which  a  bond,  duly  executed,  expressing  a  con- 
tract which  the  parties  had  a  right  to  make,  has  been  held  to 
be  valid  at  common  law,  although  not  made  with  the  formalities, 
or  executed  in  the  mode,  provided  by  a  statute  under  which  it 
purports  to  have  been  given.  See  Sweetser  v.  Hay,  2  Gray,  49, 
and  cases  there  cited.  But  we  find  no  case  in  which  it  has 
been  held  that  a  written  instrument,  purporting  to  be  a  specialty, 
and  plainly  intended  by  the  parties  to  have  all  the  incidents 
and  characteristics  of  a  bond  in  the  strict  and  technical  sense 
of  that  word,  has  ever  been  transmuted  by  the  court  into  a  simple 
contract,  for  the  reason  that  it  has  not  been  properly  executed 
to  take  effect  as  a  contract  under  seal. 

It  is  therefore  held  by  a  majority  of  the  court,  that  there 
should  be  judgment  for  the  defendant. 


Necessity  for  Demand  on  Principal  and  Notice  of  Default  to 

Guarantor* 

DAVIS  ET  AL.  v.  WELLS,  FARGO  &  CO. 

104  U.  S.  164. 

(Given  in  Chapter  I,  Ante.) 


Liability  of  Blank  Indorsers  and  Accommodation  Parties  to 
Commercial  Paper.-f 

SAWYER  v.  BROWNELL. 
13  R.  I.  141.     1880. 

Durfee,  C.  J.     This  is  assumpsit  on  a  promissory  note  signed 
by  D.  L.  Brownell,  payable  on  demand,  with  interest  at  seven 

*  See  Sec.  859,  Vol.  6,  Cyclopedia  of  Law. 
t  See  Sec.  896,  Vol.  6,  Cyclopedia  of  Law. 


272  LIABILITY    OF    SURETY. 

per  cent,  per  annum,  to  the  order  of  Stephen  Brownell,  in- 
dorsed by  Stephen  Brownell,  and  subsequently  indorsed  under 
Stephen  Brow  mil's  name  by  Seba  Carpenter.  The  action  is 
againsl  the  two  Brownells  and  Carpenter  jointly  under  the 
statute:  Pub.  Laws  R.  T.,  cap.  563,  §  2  of  April  20,  1876.  The 
two  Browmlls  make  no  defense;  Carpenter  defends  on  the 
ground  that  he  did  not  receive  timely  notice  of  the  dishonor 
of  the  note  to  charge  him  as  indorser.  It  appears  that  the  note 
was  indorsed  by  both  Stephen  Brownell  and  Seba  Carpenter 
for  the  accommodation  of  D.  L.  Brownell,  to  enable  D.  L. 
Brownell  to  borrow  money  on  it  from  the  plaintiff,  and  that  D. 
L.  Brownell  used  it  for  that  purpose.  The  plaintiff  introduced 
testimony  against  objection  for  the  purpose  of  showing  that 
Carpenter  had  no  particular  design  in  indorsing  his  name  under 
that  of  Stephen  Brownell,  and  that  he  would  as  readily  have 
indorsed  above  him,  his  only  purpose  being  to  give  credit  to  the 
paper  for  the  benefit  of  D.  L.  Brownell.  The  object  was  to  bring 
the  case  within  the  rule  laid  down  in  Mathewson  v.  Sprague,  1 
R.  I.  8,  and  reaffirmed  in  several  later  cases,  for  which  see  Car- 
penter v.  McLaughlin,  12  R.  I.  270,  that  one  who  indorses  a  note 
payable  to  another  before  its  issue  is  liable  to  the  payee  as  a  joint 
maker,  and  is  therefore  not  entitled  to  notice.  We  need  not  de- 
cide whether  the  testimony  is  admissible,  for,  admitting  it,  we 
do  not  think  if  shows  that  Carpenter  did  not  designedly  indorse 
his  name  under  that  of  Stephen  Brownell  with  intent  to  become 
a  second  accommodation  indorser,  and  to  secure  to  himself  the 
privileges  of  such  an  indorser.  The  form  of  the  contract  must 
at  least  prima  facie  determine  its  construction.  The  case,  there- 
fore, does  not  fall  under  Mathewson  v.  Sprague,  for  in  that  case, 
as  in  the  eases  which  reaffirm  it,  the  note  issued  directly  to  the 
payee  and  had  the  name  on  the  back  when  it  issued  to  him,  so 
that  there  was  no  ground  for  any  claim  on  the  part  of  the  person 
who  signed  it  on  the  back  that  he  so  signed  it  only  as  an  accom- 
modation indorser.  The  case  presents  simply  the  question 
whether  an  accommodation  indorser  on  a  note  like  that  in  suit 
is  entitled  to  the  usual  notice  of  dishonor.  That  an  accom- 
modation indorser  is  ordinarily  entitled  to  such  notice  is,  we 
suppose,  beyond  question,  and  if  in  the  case  at  bar  there  is 
any  doubt  it  is  because  the  note  is  payable  on  demand  witii 


SPURGEON   v.   SMITHA.  273 

interest  instead  of  being  an  ordinary  time  note.  We  think, 
however,  the  precedents  show  that  this  is  not  a  circumstance 
which  varies  the  right  of  the  indorse/':  Smith  v.  Becket,  13  East, 
187;  Rice  v.  Wesson,  11  Met.  400;  Lockwood  v.  Crawford,  18 
Conn.  361;  Perry  v.  Green,  10  X.  J.  Law,  Gl ;  Lord  v.  Chad- 
bourne,  8  Me.  108;  Daniel  on  Negotiable  Instruments,  §707; 
1  Parsons  on  Notes  and  Bills,  555  et  scq.  See,  also,  on  the  sub- 
ject generally.  Howe  v.  Merrill.  5  Cush.  80;  Vore  v.  Hurst,  13 
Ind.  551;  Bigelow  v.  Colton,  13  Gray,  309;  Clapp  et  al.  v.  Rice 
et  al.,  13  Gray,  403;  Dubois  v.  Mason,  127  Mass.  37;  Good  v. 
Martin,  5  Otto,  90. 

We  must,  therefore,  give  the  defendant  Carpenter,  inasmuch 
as  there  is  no  claim  that  he  had  the  usual  notice,  judgment  for 
his  costs. 


Ways  in  Which  Surety  or  Guarantor  May  be  Discharged* 

SPURGEON  v.  SMITHA  ET  AL. 
114  Ind.  453.     1887. 

Elliott,  J.  The  appellant's  complaint  is  founded  on  a  prom- 
issory note  executed  by  the  appellees.  The  second  paragraph 
of  the  answer  of  the  appellees  avers  that  they  executed  the  note 
as  the  sureties  of  William  R.  Smitha ;  that  the  appellant  knew 
the  capacity  in  which  they  executed  the  note ;  that  their  principal 
paid  him  $240 ;  that  the  appellant  thereupon  reloaned  the  remain- 
der of  the  sum  due  him  to  William  R.  Smitha,  without  the  know- 
ledge or  consent  of  the  appellees. 

The  second  paragraph  of  the  answer  avers  the  fact  of  surety- 
ship and  the  appellant's  knowledge,  and  also  avers  that  after 
the  note  matured  the  principal  tendered  to  the  appellant  the 
amount  of  the  note;  that  he  accepted  $240  in  part  payment  of 
the  note,  and  agreed  with  William  R.  Smitha  that  he  should 
retain  the  remainder,  paying  interest  thereon  for  one  year. 

The  third  paragraph  of  the  answer  is  substantially  the  same 
as  the  second. 


*  See  Sees.  897-904,  Vol.  6,  Cyclopedia  of  Law. 


274  LIABILITY    OF    SURETY. 

The  fourth  paragraph  is  a  plea  of  payment. 

The  contrad  made  by  the  creditor  and  the  principal,  wherein 
tli"  former,  after  accepting  pari  payment  of  the  debt,  reloaned 
the  latter  the  remainder  of  the  money  due,  released  the  sureties. 
Sureties,  as  is  well  known,  have  a  right  to  stand  upon  the  letter 
of  their  contract,  and  if  a  creditor  assumes  to  change  the  contract 
lir  releases  them  from  liability.  According  to  the  averments  of 
the  firsl  paragraph  of  the  answer,  the  creditor,  knowing  that  the 
appellees  were  sureties,  made  a  radica]  change  in  the  contract 
by  reloaning  part  of  the  money  due  him  to  the  principal,  and  he 
has  lost  all  claim  upon  the  sureties. 

The  averment  that  the  money  was  reloaned  to  the  principal 
debtor  for  one  year  is  the  averment  of  a  fact,  and  not  of  a  mere 
conclusion:  Taylor  v.  Lohman,  74  Ind.  418  (422).  The  word  "re- 
loan"  describes  a  fact — the  act  of  lending  money  a  second  time, 
or  oftener.  The  evidence  required  to  establish  the  fact  is  a  very 
different  thing  from  the  fact  itself,  and  not  only  need  not  be 
pleaded,  but  cannot  be  pleaded  without  a  violation  of  the  rules 
of  pleading. 

The  act  of  the  creditor,  in  refusing  the  money  tendered  him 
by  the  principal  debtor,  released  the  sureties.  The  sureties  had 
a  right  to  rely  upon  the  performance  of  the  contract  by  the 
principal  and  upon  the  acceptance  of  performance  by  the  cred- 
itor. This  much  was  implied  in  their  contract,  and  as  the  creditor 
declined  to  accept  performance  when  tendered  him,  he  departed 
from  the  contract,  and  released  the  sureties:  Post  v.  Losey,  111 
Ind.  75  (60  Am.  R.  677).  A  creditor  impliedly  undertakes  that 
the  debt  may  be  paid  at  maturity,  and  if  he  refuses  to  accept  the 
money  >\\n\  when  tendered  him,  he  breaks  this  implied  undertak- 
ing, and  loses  his  claim  upon  the  sureties,  for  the  act  is  injurious 
to  them. 

A  creditor  who  does  any  act  inconsistent  with  the  terms  of 
the  contrad,  or  prejudicial  to  the  interests  of  sureties,  releases 
them  from  liability:  1  Story  Eq.  Jus.,  §§324,  325.  The  refusal 
to  accept  the  money  tendered  was,  it  is  very  clear,  inconsistent 
with  the  terms  of  the  contract,  for  the  terms  of  the  contract 
made  it  the  duty  of  the  creditor  to  accept  payment  when  tendered 
him.  It  was  also  an  act  prejudicial  to  the  interests  of  the  sure- 
ties, for,  if  the  creditor  had  accepted  payment,  they  would  have 


SPURGEON   v.   SMITHA.  275 

been  effectually  discharged.  The  authorities  fully  sustain  our 
conclusion,  although  the  reasoning  upon  which  some  of  the 
Courts  proceed  is  somewhat  different  from  that  pursued  by  us; 
their  reasoning  having  for  its  basis  the  theory  that  the  refusal 
of  the  creditor  to  receive  the  money  when  tendered  is  a  fraud 
upon  the  sureties:  Sears  v.  Van  Dusen,  25  Mich.  351;  Donley  v. 
Camp.  22  Ala.  659;  White  v.  Life  Association,  63  Ala.  411)  35 
Am.  Rep.  45)  ;  McQuesten  v.  Noyes,  6  X.  II.  19 ;  Sailly  v.  Elmore, 
2  Paige.  497;  Joslyn  v.  Eastman,  46  Vt.  358;  Johnson  v.  Ivey, 
4  Cold.  60S;  Hayes  v.  Josephi,  26  Cal.  535;  Curiae  v.  Packard, 
29  Cal.  194;  Brandt  Suretyship  and  Guaranty,  §295;  Baylies 
Sureties  and  Guarantors,  273 ;  Fell  Law  of  Guaranty  and  Surety- 
ship, 520. 

The  case  of  Clark  v.  Sickler,  64  N.  Y.  231,  is  not  supported 
by  authority,  and,  as  Mr.  Brandt  shows,  is  not  sound  on  prin- 
ciple. In  an  early  case  in  our  own  reports,  a  doctrine  very 
different  from  that  asserted  in  Clark  v.  Sickler,  supra,  was  de- 
clared. 

In  the  case  decided  by  this  Court,  that  of  Musgrave  v.  Glas- 
gow, 3  Inch  31,  the  Court  said:  "If  Musgrave  had  actually 
placed  the  money  in  the  hands  of  Glasgow  for  the  payment  of 
the  notes,  and  afterward  received  it  back  from  him  as  a  new 
loan,  under  the  circumstances  detailed,  it  cannot  be  doubted 
that  this  would  have  been  a  payment,  and  Bond  would  have 
been  discharged.  And  if  the  parties  intended  to  waive  the 
formality  of  passing  the  money  from  one  to  the  other  and  back 
again,  but  really  to  consider  the  transaction  as  a  payment  and 
new  loan,  we  do  not  see  any  good  reason  why  it  might  not  be  so  re- 
garded by  the  jury." 

It  seems  clear  to  us  that  where  the  creditor  declines  to  re- 
ceive the  money  offered  him  he  elects  to  change  the  contract, 
for  it  is  as  much  part  of  the  contract  that  he  should  accept  the 
money  when  tendered  as  that  the  debtor  should  pay  it.  Having 
elected  to  depart  from  the  contract,  he  really  made  a  new  one, 
binding  only  the  party  consenting  to  it,  and  that  was  the  prin- 
cipal debtor. 

In  the  ease  of  Wilson  v.  McVey,  83  Ind.  108,  cited  by  the 
appellant,  this  Court  referred  to  Mr.  Brandt's  work  and  ap- 


L'76  LIABILITY    OF    SURETY. 

proved  the  rule  as  stated  by  him,  but  held  that  the  case  was  not 
wiihin  the  rule. 

The  Court  gave  the  jury  this  instruction:  "It  is  a  well-set- 
tled rule  of  law  thai  sureties  are  not  to  be  held  beyond  the 
precise  terms  of  their  contrad  ;  they  have  a  right  to  stand  upon 
the  very  terms  of  their  contract,  and  if  they  do  not  assent  to  any 
variation  of  it,  and  a  variation  is  made,  it  is  fatal." 

There  was  no  error  in  giving  this  instruction,  for  it  states 
the  law  correctly,  and  was  applicable  to  the  evidence. 

The  evidence  fairly  supports  the  verdict,  for  it  supplies  ample 
grounds  for  the  inference  that  the  money  was  offered  to  the 
appellant  by  the  principal  debtor,  and  that  the  offer  was  declined, 
except  as  to  part  of  the  debt,  and  the  debtor  requested  to  keep 
the  remainder.  One  of  the  witnesses  says  that  the  appellant  ad- 
mitted th.it  the  principal  debtor  "had  a  big  roll  of  money  in 
his  sleeve,  and  pulled  it  out  and  offered  to  pay  the  balance." 
Another  witness  testified  that  the  appellant  said  to  him  that 
"William  R.  Smitha  had  paid  him  $200  and  interest,  and  told 
him  that  he  had  the  rest  of  the  money,  and  he,"  the  appellant, 
"said  I  would  rather  he  would  keep  the  money  and  pay  interest, 
lb.  Spurgeon,  said  it  was  not  a  good  tender  when  he  took  out 
the  money  and  offered  it  to  him."  It  was  said  by  another 
witness  "that  Spurgeon  told  William  R.  Smitha  that  he  did  not 
want  all  the  money ;  he  wanted  to  keep  it  at  interest ;  that  he, ' ' 
William,  "offered  him  the  money,  but  he  said  he  did  not  want 
it,  that  he  would  rather  have  the  interest." 

It  is  true  that  the  evidence  does  not  show  a  strict  tender,  but 
it  does  show  a  waiver  of  a  formal  tender.  The  money  was  present 
and  was  offered  the  appellant,  and  it  was  by  his  own  affirmative 
act  that  a  formal  tender  was  prevented.  If  there  had  been  no 
production  of  the  money,  and  nothing  more  than  a  bare  offer 
to  pay  the  debt,  it  may  be  that  the  offer  would  not  discharge 
the  sureties;  but  here  the  offer  was  accompanied  by  the  pro- 
duction of  the  money,  and  there  was  both  the  willingness  and  the 
ability  to  make  immediate  payment. 

We  do  not  hold  that  a  mere  offer  to  pay  will  discharge  the 
sureties;  but  we  do  hold  that  where  the  money  is  actually  pro- 
duce,! and  an  unconditional  offer  made  to  pay  it  at  once  to 
the  creditor,  and  he  refuses  to  accept  it,  and  asks  the  debtor 


DEBRING   v.    MOORE.  277 

to  retain  it,  the  sureties  are  discharged.  Where  the  money  is 
actually  produced,  and  the  creditor  does  not  object  to  the  tender 
but  requests  the  debtor  to  retain  the  money,  he  cannot  subse- 
quently insist  that  the  tender  was  insufficient.  The  act  of 
the  creditor  makes  the  offer  of  the  money  produced  by  the  debtor 
a  sufficient  tender,  for  he  so  characterizes  it  by  his  act. 

Judgment  affirmed. 


DEERING  v.  MOORE. 

86  Me.  181;  29  Atl.  988.     1893. 

Haskell,  J.  Debt  by  an  obligee  against  a  surety  upon  two 
bonds,  given  by  a  collector  of  taxes  for  the  years  1884  and  1885, 
respectively.  The  last  bond  was  not  signed  by  the  principal. 
Each  surety  bound  himself  severally,  and  not  jointly,  in  the  sum 
of  $5,000.  The  obligee  received  from  two  sureties  a  sum  of 
money,  ' '  in  full  discharge  from  liability  upon  each  bond. ' '  Two 
questions  are  presented: 

I.  Did  the  failure  of  the  principal  to  sign  the  last  bond  render 
it  void  ?  We  think  not.  The  bond  was  conditioned  that  the  prin- 
cipal should  faithfully  perform  official  duty.  This  he  was  bound 
by  law  to  do,  just  as  effectually  as  if  he  had  covenanted  to  do  it 
by  signing  the  bond.  The  engagement  of  the  surety,  therefore, 
rested  upon  the  legal  obligation  of  the  principal  already  incurred. 
It  is  not  like  the  cases,  often  referred  to,  where  no  obligation 
attaches  to  the  prinicpal,  outside  of  the  bond  itself.  In  those 
cases,  the  principal  not  being  bound,  it  would  be  unjust  to  hold 
the  surety.  Nor  is  it  like  the  case  of  bail,  where  the  sureties  have 
peculiar  rights  flowing  from  the  stipulation  agreed  to  by  the  prin- 
cipal. The  bond  must  be  held  good  at  common  law.  Howard  v. 
Brown,  21  Maine,  385;  Scarborough  v.  Parker,  53  Maine,  252; 
Goodyear  Co.  v.  Bacon,  148  Mass.  542. 

II.  Did  the  discharge  of  two  sureties  release  the  defendant, 
another  surety?  No.  The  defendant  was  one  of  six  sureties, 
who  bound  themselves  severally  and  not  jointly,  each  in  the  sum 
of  $5,000.  Their  relations  to  each  other  are  precisely  the  same  as 
if  each  one  had  executed  a  separate  bond.     They  are  neither 


278  LIABILITY    OF    SURETY. 

necessarily  jom1  debtors,  nor  joint  sureties.  Had  the  principal 
executed  the  bond,  he  would  have  hound  himself  in  the  sum  of 
$30,000.  The  sureties,  instead  of  standing  in  jointly  for  that 
amount,  divided  it  equally  among  them,  and  each  one  became 
sevi  rally  bound  for  his  aliquot  share  They  are  sureties  for  the 
principal,  and  may  or  may  oot  be  called  upon  to  bear  a  common 
burden,  as  circumstances  may  require.  If  they  are  (thai  is, 
it  the  whole  liability  be  less  than  the  aggregate  amount  assumed 
by  all  of  them,  it  becomes  a  common  burden,  not  by  reason  of 
any  contrad  or  engagement  to  indemnify  each  other,  but  on  the 
principle  of  equity,  that  a  common  burden  shall  be  equally 
borne  by  all),  they  become  co-sureties,  and  stand  in  relation  to 
each  other  as  joint  debtors,  and  are  bound  to  contribute  to  each 
other,  so  thai  they  shall  all  fare  alike.  In  cases  of  this  sort,  of 
course,  none  can  be  charged  beyond  the  amount  that  he  has  stip- 
ulated For.  Warner  v.  Morrison,  3  Allen,  567.  It  follows,  there- 
fore, that  the  release  of  one  would  work  the  release  of  all.  That 
is  based  upon  the  presumption  of  payment,  the  seal  being  con- 
clusive evidence  of  complete  and  ample  consideration.  To  work 
tlie  discharge  of  a  debtor,  the  agreement  must  be  made  upon 
sufficient  consideration,  and  that  pays  the  debt.  At  common  law, 
tlie  pari  paymenl  of  a  debt  is  not  sufficient  consideration  for  its 
discharge.  Bailey  v.  Day,  26  Maine,  88;  Potter  v.  Green,  6 
Allen,  442.  If  the  discharge  be  by  a  sealed  instrument,  it  is  of 
no  consequence  what  the  actual  consideration  may  be,  for  the 
seal  is  conclusive  evidence  of  sufficient  consideration.  By  the 
statute  of  this  State,  passed  in  1851,  c.  213,  R.  S.,  c.  82,  §45, 
the  settlement  of  a  demand  upon  the  receipt  of  money  or  other 
valuable  consideration,  however  small,  will  bar  an  action  upon 
it.  It  should  be  observed  that  the  demand  must  be  settled,  in 
order  to  effectuate  that  result,  The  discharge  of  a  debtor  from 
liability  upon  a  demand  that  is  to  remain  outstanding  will  not 
so  operate.  This  distinction  applies  where  one  of  two  joint 
debtors  is  discharged  upon  the  consideration  of  part  payment, 
leaving  the  demand  outstanding  against  the  other.  Such  dis- 
charge will  not  bar  an  action  against  both;  nor  can  it  be  pleaded 
by  the  other  in  an  action  against  him,  if  the  liability  be  several. 
Bank  v.  Marshall,  73  Maine,  7!);  Drinkwater  v.  Jordan,  46  Maine, 
432;  McAUester  v.  Sprague,  34  Maine,  296. 


DODD  v.  WINN.  279 

In  the  case  at  bar,  the  attempted  discharge  of  some  of  the 
sureties  is  not  pretended  to  have  been  by  a  sealed  instrument. 
Had  it  been,  it  would  have  worked  a  discharge  of  all  the  sureties, 
for  they  stand  in  the  relation  to  each  other  of  joint  debtors,  being 
co-sureties  for  the  payment  of  the  same  debt.  Nor  does  it  pre- 
tend to  have  discharged  the  whole  debt,  as  provided  for  by 
statute.  It  simply  presumes  to  discharge  some  sureties  from  a 
liability  or  debt  that  was  to  remain  outstanding,  and,  therefore, 
not  being  upon  sufficient  consideration  that  would  have  paid 
the  debt,  or  so  much  of  it  as  they  had  engaged  to  pay  by  their 
covenant,  nor  evidenced  by  a  sealed  instrument,  it  was  ineffectual 
to  discharge  any  one. 

The  result  is,  damages  upon  the  last  bond  should  be  assessed 
in  a  sum  equal  to  the  existing  default  of  the  principal,  with  inter- 
est from  the  time  it  accrued,  leaving  the  defendant  to  such  claims 
for  contribution  as  shall  prove  just. 

Defendant  defaulted.     Damages  to  be  assessed  below. 


DODD  v.  WINN. 

27  Mo.  501.     1858. 


This  was  an  action  in  favor  of  Levi  Dodd  against  Isham  O. 
Winn  on  a  promissory  note  executed  by  David  C.  Glascock,  M. 
McDonald,  R.  P.  Richmond,  Minor  J.  Winn,  James  G.  Caldwell 
and  said  Isham  0.  Winn.  The  jury  found  the  following  special 
verdict:  "We,  the  jury,  find  a  special  verdict  as  follows:  On  the 
6th  day  of  April,  1849,  the  plaintiff  Dodd  sued  Minor  J.  Winn, 
on  the  same  note  now  sued  on,  before  the  recorder  of  the  city  of 
Hannibal,  the  said  Minor  being  one  of  the  obligors  in  the  note. 
Said  Dodd  recovered  a  judgment  before  said  recorder  against 
said  Minor  on  the  6th  day  of  April,  1850 ;  and  an  execution  was 
issued  by  said  recorder  on  said  judgment  on  the  11th  day  of 
April,  1850,  and  placed  in  the  hands  of  the  marshal  of  said  city, 
and  by  him  levied  on  a  house  in  said  city  as  the  property  of 
Minor  J.  Winn ;  that  said  marshal  advertised  said  house  for  sale 
under  said  execution,  but  did  not  sell  the  house,  being  ordered 


280  LIABILITY    OF    SURETY. 

by  the  plaintiff's  counsel  to  tear  down  the  advertisements  and 
return  the  execution  "no  property  found;"  which  he  did;  and 
no  execution  has  since  issued  on  said  judgment  by  the  recorder. 
The  jury  further  find  as  follows,  that  when  the  marshal  levied 
on  the  house  as  aforesaid,  a  pari  of  said  house  was  owned  by 
said  Minor  -I.  Winn,  which  part  so  owned  by  him  was  worth  the 
sum  of  $137.50.  Said  house  was  standing  on  a  piece  of  ground 
owned  by  Jeremiah  Strode,  who  had  leased  it  to  said  Minor  J. 
Winn,  with  the  privilege  of  taking  off  when  he  pleased  any  house 
he  mighl  erect  thereon.  Minor  -I.  Winn  had  built  the  house 
in  question  on  said  lot,  but  had  sold  a,  part  of  it  before  the  exe- 
cution was  levied  as  before  stated.  The  jury  further  find  that 
David  0.  Glascock  was  the  principal  in  the  note  sued  on,  and 
that  Minor  J.  Winn  an  1  [sham  0.  Winn  were  each  securities 
for  said  (ilascock. " 

The  Court  rendered  judgment  on  this  verdict  in  favor  of 
plaintiff  for  eighty  dollars  debt  (four-fifths  of  the  amount  of  the 
original  note  sued  on),  and  assessed  the  damages  for  the  deten- 
tion thereof  at  seventy-six  dollars. 

Richardson,  -Judge,  delivered  the  opinion  of  the  Court. 

The  law  is  well  settled  that  a  valid  agreement  between  the 
creditor  and  the  principal  debtor  to  extend  the  time  of  payment, 
or  any  improper  interference  by  the  creditor  with  the  process  of 
law  after  the  commencement  of  a  suit,  by  which  the  surety  may 
be  injured  or  subjected  to  greater  risk,  or  be  delayed  in  the 
right  on  payment  of  the  debt  to  proceed  against  the  principal, 
if  made  or  done  without  the  assent  of  the  surety,  will  discharge 
him  from  his  liability  (24  Mo.  333;  26  Mo.  243)  ;  and  the  rela- 
tion of  principal  and  surety  or  of  co-sureties  is  not  extinguished 
by  judgment.  Rice  v.  Morton,  19  Mo.  263.  A  release  of  the  prin- 
cipal will  discharge  the  surety,  but  one  surety  may  be  discharged, 
without  prejudice  to  an  action  against  the  others,  to  the  extent 
thai  they  would  be  liable  in  a  suit  for  contribution  between  them- 
selves. Ronton  v.  Lacy,  17  Mo.  399.  The  creditor  can  not,  by 
discharging  one,  increase  the  liability  of  the  other;  and  he  will 
not  be  allowed,  by  discharging  one,  to  impose  on  the  other  a 
greater  proportion  of  a  common  burden  than  in  equity  he  ought 
to  I.  ,:r.  Ai  law.  if  there  art'  several  sureties  and  one  is  insolvent 
and  another  pays  the  whole  debt,  he  can  only  recover  against  the 


UODD  v.  WINN.  281 

solvent  sureties  their  pro  rata  part  as  if  all  of  them  were  solvent ; 
but  the  rule  in  equity  is  more  just  and  reasonable,  and  the  in- 
solvent's share  is  apportioned  among  those  who  arc  solvent.  1 
Story  Eq.  §  498.  The  eighth  section  of  our  statute  concerning 
securities  provides  that  one  surety  at  the  suit  of  another  shall 
not  be  liable  to  pay  more  than  his  due  proportion  of  the  original 
demand,  but  what  is  his  due  proportion  will  vary  according  to 
the  circumstances.  Thus,  if  there  are  three  sureties,  and  all  of 
them  are  solvent,  and  one  pays  the  debt,  each  of  the  others  will 
be  liable  to  him  for  one-third  of  the  amount  only ;  but  if  one  of 
them  is  insolvent,  the  other  will  be  liable  for  one-half. 

In  this  case  it  seems  that  Glascock  was  the  principal  debtor, 
and  that  the  other  five  parties  to  the  note  were  sureties.  Now  if 
all  the  sureties  were  solvent,  and  the  defendant  paid  the  debt,  he 
could  only  require  M.  J.  Winn  to  contribute  one-fifth  part  of  it, 
and  therefore  could  only  ask  to  have  one-fifth  abated,  and  could 
only  complain  of  the  conduct  of  the  plaintiff  in  releasing  the  levy 
of  the  execution  to  that  extent.  But  if  the  other  sureties  are  in- 
solvent, M.  J.  Winn  would  be  bound  to  contribute  to  the  defend- 
ant one-half  instead  of  one-fifth  of  the  debt ;  in  which  case,  if  the 
plaintiff  had  released  M.  J.  Winn,  he  could  only  demand  of  the 
defendant  the  other  moiety;  and,  on  principle,  the  same  result 
must  follow  if  he  could  have  made  half  the  debt  but  for  his  im- 
proper interference  with  the  execution.  These  questions  can 
not  be  determined  from  the  meagre  statement  of  facts  in  the 
special  verdict.  It  does  not  appear  whether  the  other  sureties 
were  solvent  or  not. 

The  statute  authorizes  this  court  to  remand  a  cause  when  the 
facts  in  a  special  verdict  are  insufficiently  found  (2  R.  C.  1855, 
p.  1301,  §  35)  ;  and  the  judgment  then  will  be  reversed  and  the 
cause  remanded;  Judge Napton  concurring.  Judge  Scott  not 
sitting. 


LIABILITY  OF  SURETY. 

McCOMB   v.   K1TTRIDGE. 
14  Ohio,  348.     1846. 

This  case  comes  before  this  courl  on  motion  for  new  trial,  re- 
served  in  Huron  county. 

The  case  was  tried  at  the  A.ugus1  term  of  the  Supreme  Court, 
1845,  and  a  verdict  found  for  the  defendant,  under  the  charge 

of  thr  court.  The  facts,  and  law  of  the  case,  were  reserved  for 
consideration  at  court  in  bank,  upon  a  written  agreement  as  to 
what   papers  and  depositions  should  be  in  evidence. 

The  note  upon  which  suit,  is  brought  was  given  by  Moses 
Kimball,  John  Miller,  Picket  Latimer,  and  the  defendant  Kitt- 
ridge,  to  James  Gilruth,  for  $2,000,  dated  September  1st,  1836, 
payable  November  26,  1836,  indorsed  by  said  Gilruth  to  Hamlin 
and  Ward,  and  by  them  to  plaintiff. 

The  defense  set  up  and  relied  upon  in  the  special  plea  is,  that 
Kittridge  executed  this  note,  as  surely  for  Kimball,  which  fact 
was  known  to  Gilruth  at  the  execution  and  delivery  of  said  note; 
that  Gilruth,  after  the  same  fell  due,  to-wit,  on  February  9,  1837, 
contracted  to  give  further  time,  and  delay  the  payment  of  the 
same  until  the  1st  of  May  thereafter,  in  consideration  of  said 
Kimball  executing  to  him  a  note  for  $34.44,  payable  on  said  1st 
of  May;  that  said  note  for  $34.44  was  executed,  and  a  greater 
part  thereof  paid;  that  the  time  specified  was  actually  given,  and 
that  said  agreement  was  entered  into  without  the  knowledge  or 
consenl  of  the  defendant. 

The  replication  denies  the  making  of  any  such  agreement. 

Read,  J.  The  pleadings  admit,  and  the  proof  shows,  beyond 
doubt,  that  Kittridge  was  surety.  Gilruth  swears  that  the  note 
was  given  for  money  loaned ;  that  the  whole  negotiation  was  with 
Kimball,  with  whom  he  always  dealt  in  relation  to  the  demand; 
that  the  note  continued  his  property  until  September  18,  1837. 
This  was  long  after  it  was  due,  about  ten  months. 

The  part  of  Gilruth 's  testimony  upon  which  the  defense  mainly 
relies,  is  as  follows:  On  February  9,  1837,  the  witness  was  at 
Norwalk  when  the  note  was  given,  and  called  upon  Kimball  for 
pay,  who  excused  himself,  and  wanted  delay;  and  it  was  pro- 
posed to  pay  him  ten  per  cent,  as  a  consideration  for  it.     The 


McCOMB   v.   KITTRIDGE.  283 

witness  says:  "I  have  consented  to  take  the  proposed  interest, 
it  being  expressly  agreed  that  the  notes  should  remain  just  as 
they  were,  instead  of  being  renewed.  I  agreed  to  wait  until  the 
1st  of  May  following.  Kimball  then  calculated  the  extra  four  per 
cent,  interest  on  the  $2,000  till  the  1st  day  of  May,  and  gave  me 
his  note  for  it,  part  of  which  was  traded  out  in  his  store  the  3d 
of  August  following. ' '  He  further  says,  that  the  note  of  $34.44, 
of  February  9,  1837,  and  due  May  12,  1837,  upon  which  he  re- 
ceived from  Kimball,  August  3d,  1837,  $24.63,  he  afterwards 
sold  with  the  payments  credited,  to  Latimer. 

Now,  the  question  arising  upon  the  above  state  of  facts,  is, 
was  there  such  an  agreement  to  give  further  time  upon  a  valid 
and  binding  consideration  as  will  discharge  the  surety?  It  is 
an  undoubted  principle  of  law,  that,  if  the  creditor,  by  agree- 
ment with  the  principal  debtor,  or  by  any  other  act,  precludes 
himself  at  law  from  proceeding  against  the  principal  debtor, 
the  surety  is  discharged.  It  is  not  questioned  but  that  a  bind- 
ing agreement  upon  a  valid  consideration  to  give  further  time 
to  the  principal  debtor,  will  discharge  the  surety.  But  it  is 
considered  in  this  case,  that  there  was  no  valid  consideration 
for  the  agreement  to  extend  the  time  of  payment  of  this  note 
from  February  9,  1837,  to  the  1st  of  May  following;  because  the 
$34.44  note,  the  consideration  of  such  agreement,  was  for  a  rate 
of  interest  larger  than  our  statute  allows  to  be  collected.  It  is 
just  as  competent  for  the  principals  to  a  note  to  extend  the  time 
of  payment  for  a  specified  period,  as  it  was  to  fix  the  time  of 
payment  originally.  If  the  lender  of  money,  secured  by  a  note, 
after  the  same  becomes  due,  contracts  with  the  borrower  that 
the  time  of  paying  the  same  shall  be  extended  for  one  year,  or 
for  any  other  period,  upon  consideration  that  the  borrower  shall 
pay  the  legal  or  less  rate  of  interest,  why  is  not  that  a  binding 
contract?  The  lender,  by  this  contract,  secures  to  himself  the 
interest  on  the  money  for  the  year;  and  the  borrower  precludes 
himself  from  getting  rid  of  the  payment  of  the  interest,  by  dis- 
charging the  principal.  It  is  a  valuable  right  to  have  money 
placed  at  interest,  and  it  is  a  valuable  right  to  have  the  privilege, 
at  any  time,  of  getting  rid  of  the  payment  of  interest,  by  dis- 
charging the  principal.  By  this  contract  the  right  to  interest  is 
secured  for  a  given  period,  and  the  right  to  pay  off  the  principal, 


284  LIABILITY    OF    SURETY. 

and  gel  rid  of  paying  the  int<  rest,  is  also  relinquished  for  such 
period.  Here,  then,  are  all  the  elements  of  a  binding  contract. 
I'.ut  il  is  said  there  is  no  consideration  for  the  extension  of  time, 
because  the  law  gives  six  per  cent,  after  the  note  is  due.  But  the 
law  dors  not  secure  the  payment  of  this  interest  for  any  given 
period,  or  prevent  the  discharge  of  the  principal  at  any  moment. 
There  is  precisely  the  same  consideration  for  the  extension  of 
time  as  there  was  for  the  original  loan.  The  consideration  of  the 
loan,  in  the  part  of  the  borrower,  is  the  payment  of  interest.  If 
there  was  no  law  limiting  the  amount  of  interest,  the  parties 
might  contract  for  any  rate  they  pleased.  A  contract  to  forbear 
the  collection  of  a  debt  for  a  specified  period,  in  consideration  of 
the  payment  of  a  rate  of  interest  beyond  what  the  law  allows,  is 
founded  upon  a  valid  consideration.  This  would  never  have  been 
doubted  at  all,  if  the  law  had  not  fixed  the  rate  for  which  collec- 
tion could  be  bad.  But;  by  limiting  the  rate  of  interest,  the  law 
does  not  declare  that  such  rate  is  not  a  valuable  consideration,  but, 
on  the  contrary,  declares  that  such  rate  is  so  fully  valuable,  that  it 
will  not  permit  a  higher  rate  for  the  use  of  money  or  forbearance. 
The  law  would  permit  any  amount  to  be  paid  for  forbearance, 
if  it  were  not  for  the  fact  that  this  would  break  down  the  whole 
policy  of  the  law  limiting  the  rate  of  interest;  ami  that  forbear- 
ance amounts  to  nothing  more  than  a  mere  loan.  The  only  doubt 
which  has  arisen  from  the  fact  in  this  case  is,  that,  in  countries 
where  the  law  declares  usurious  contracts  void,  a  contract  to  pay 
usurious  interest  is  void ;  and  hence,  such  a  contract  to  pay 
would  form  no  consideration  for  an  agreement  to  give  time,  or 
forbear  the  collection  of  a  debt  for  a  specified  period.  Such  a 
contract  with  us  is  not  wholly  void,  but  the  statute  steps  in  and 
pares  it  down  to  the  legal  rate,  and  permits  that  to  be  collected. 
Hence  this  $34.44  note  is  a  good  and  valid  contract  for  the  pay- 
ment of  six  per  cent,  interest — and  hence,  a  good  consideration 
to  support  the  agreement  to  extend  the  time  of  payment  of  the 
$2,000,  to  the  time  contracted  for;  and  the  original  parties,  with- 
out the  knowledge  of  the  surety,  having,  by  valid  agreement,  ex- 
tended the  time,  the  surety  is  discharged. 

This  view  carries  out  the  spirit  of  the  statute  respecting  in- 
terest, secures  it  from  the  opportunity  of  violation,  harmonizes 


PEARL  v.   DEACON.  285 

with  the  decisions  had  under  it,  and  rests,  in  our  opinion,  upon 
a  solid  foundation. 


PEARL  v.  DEACON. 

24  Bcav.  186.     1857. 

The  Master  of  the  Rolls. 

I  retain  the  opinion  expressed  by  me  yesterday.  The  facts 
are  shortly  these : — Mr.  Pearson  applied  to  the  defendants,  who 
are  brewers  at  Windsor,  for  a  loan  of  250/.,  to  enable  him  to  take 
a  public-house,  called  The  Carpenters'  Arms.  They  said  we  will 
do  so  if  you  will  get  a  good  surety  for  the  amount,  and  assign 
over  your  pension  and  furniture.  That  was  agreed  to ;  Pearson 
offered  the  plaintiff  as  his  surety  for  half  the  amount,  and  Castles 
as  surety  for  the  other  half ;  the  defendants  accepted  them,  and 
on  the  16th  of  November,  1852,  two  joint  and  several  promissory 
notes  were  given  to  the  defendants,  one  by  Pearson  and  the  plain- 
tiff, and  the  other  by  Pearson  and  Castles.  Six  days  afterwards, 
viz.,  on  the  23rd  of  November,  Pearson  assigned  his  pension  and 
all  the  goods  and  chattels  to  secure  this  debt  of  250/.  On  this 
transaction,  the  first  point  wdiich  was  raised  by  the  plaintiff,  in 
my  opinion,  fails.  He  says  that  this  arrangement  was  a  variation 
of  the  contract  of  suretyship,  and  that  it  discharged  the  plaintiff, 
because  the  money  was  made  payable  on  the  16th  of  November, 
1858,  or  six  years  after  the  date  of  the  mortgage.  If  the  case 
had  rested  here,  the  plaintiff  would  probably  have  been  success- 
ful, but  the  deed  goes  on,  "or  at  such  earlier  or  other  time"  as 
the  defendants  should  appoint  for  the  payment  thereof  "in  and 
by  a  notice  in  writing."  I  do  not  think  that  this  was  such  a 
variation  in  the  terms  of  the  security  as  to  discharge  the  surety; 
but  the  question  is  of  little  importance,  as  I  am  of  opinion,  on 
the  evidence,  that  the  plaintiff  had  notice  of  this  assignment  and 
of  the  terms  of  it. 

The  only  other  facts  important  to  be  stated  are  these: — The 
defendants  were  landlords  of  The  Carpenters'  Arms,  and  in  the 
year  1856,  four  years  after  this  transaction,  Pearson's  rent  being 
considerably   in   arrear,   the   defendants   distrained   and   put    a 


LIABILITY    OF    SURETY. 

broker  in  possession  of  the  furniture  under  the  distress;  on  this, 
by  arrangement,  insti  ;  the  goods,  they  took  them  al 

a  valuation  for  1 161. 

The  question  is  this: — The  furniture  having  been  expressly 
mortgaged  for  the  250Z.,  was  it  within  the  power  of  the  defend- 
ants, (o  the  injury  of  the  surety,  to  give  up  the  security  on  the 
furniture  for  the  250?.,  and  take  it  in  discharge  of  another  and 
differenl  debt  due  to  themselves?  I  am  of  opinion  thai  they 
could  uol  do  so.  It  was  said,  that  this  security  was  uot  within 
tli-  scope  of  the  Plaintiff's  contract,  and  that  a  surety  cannot  go 
nd  it.  That  is  a  mistake  with  respeel  to  the  relation  between 
a  principal  and  surety.  Lord  Eldon  expressly  stated,  in  Cray- 
thorne  v.  Swinburne,  1  I  Ves.  169,  thai  the  rights  of  a  surety 
depend  rather  on  a  principle  of  equity  than  upon  contrad  ;  there 
may  he  a  quasi  contract,  bu1  it  arises  out  of  the  equitable  relation 
between  the  parties,  t«»  he  inferred  From  the  knowledge  of  an 
blished  principle  of  equity.  The  same  doctrine  is  also  staled 
in  Mayhew  v.  Oickett,  2  Swan.  191,  and  it  is  laid  down  distini  tly, 
thai  sureties  are  entitled  to  the  benefit  of  every  security  which 
the  creditor  has  againsl  the  principal  debtor,  and  that  whether 
the  surety  knows  of  the  existence  of  those  securities  or  not  is 
immaterial.     It  the  creditor  makes  available  any  of  his  securities, 

the  surety   is  entitled  to  the   benefit    of   it. 

The  case  of  Cape!  v.  Butler,  2  Sim.  &  S.  457,  is  a  distinct 
authority  for  this  proposition.  .Air.  Ellis  sought  to  distinguish 
that  case  by  savin-  that,  in  that  case,  there  was  a  recital  of  all 
the  securities,  but  thai  here  there  was  none.  The  answer,  how- 
ever, is  this:— That  there  was  notice  to  the  surety  of  the  whole 
transaction,  and  being  so,  the  reciting  it  is  immaterial.  Lord 
\-  distinctly  laid  down  in  Mayhew  v.  Oickett,  2  Swan.  185, 
thai  il  is  a  matter  of  perfeel  indifference,  whether  the  surety  is 
aware  of  another  security  having  been  taken  by  the  creditor 
>t. 

In  the  judgmenl  of  Vice-Chancellor  Wood  in  Newton  v.  Charl- 
ton, in  Bare  651,  there  is  a  statement,  in  every  word  of  which 
I  concur.  He  says,  as  regards  the  creditor,  "He  is  bound  to 
give  to  the  surety  the  benefit  of  every  security  which  he  holds 
at  the  time  of  the  contract,— every  security  which  he  then  holds; 
and  he  is  not   allowed,  in  any  way.  p.  vary  the  position  of  the 


PEARL  v.    DEACON.  287 

surety  with  reference  to  those  securities;  thai  has  been  decided 
most  distinctly  in  Mayhew  v.  Crickett  by  Lord  Eldon,  where 
there  was  a  warrant  of  attorney  in  the  hands  of  a  creditor  put 
into  operation  by  the  creditor,  and  a  judgment  obtained,  from 
which  he  afterwards  discharged  the  principal  debtor.  Lord 
Eldon  held  it  utterly  immaterial,  whether  the  warrant  of  attor- 
ney was  known  to  the  surety  at  the  time  he  entered  into  the  con- 
tract or  not.  The  surety  had  a.  complete  right  to  the  benefit  of 
it,  and  if  the  benefit  were  lost  to  him,  he  was  at  once  discharged. ' ' 
It  is  argued  that  this  was  a  security  for  a  separate  and  dis- 
tinct debt ;  but  I  am  of  opinion  that  it  was  not  taken  for  a  sepa- 
rate and  distinct  debt,  but  for  the  debt  of  250L 

I  am  of  opinion,  therefore,  that  if  the  defendants  enforce  pay- 
ment of  the  rent  due  to  them  out  of  the  furniture,  and  then  seek 
to  compel  the  plaintiff  to  pay  the  debt  for  which  he  became 
surety,  the  plaintiff  is  entitled  to  say  to  them,  "you  must  give 
me  the  benefit  of  the  security  on  the  furniture  and  pension  which 
were  mortgaged  to  you  for  this  debt." 

What  the  defendants  have  done  is  this: — They  have  thought 
fit  to  apply  the  produce  of  the  furniture  to  a  different  and  din 
tinct  debt,  contrary  to  the  original  arrangement,  on  the  terms  of 
which,  it  is  to  be  assumed,  the  surety  consented  to  become  liable. 
I  am  therefore  of  opinion,  that  whatever  the  defendants  have 
received  ought  to  be  applied  rateably  in  discharge  of  the  whole 
debt,  and  that  the  plaintiff  is  only  liable  to  pay  half  of  the  bal- 
ance. 

If  it  were  otherwise,  the  result  would  be  this : — That  if  a  man 
advanced  1,000/.  to  another  on  a  mortgage  of  an  estate,  and  had 
the  security  of  ten  sureties,  each  of  whom  was  liable  for  100/, 
he  might  release  or  reassign  the  mortgage,  and  then  sue  the  ten 
sureties.     This  is  a  proposition  impossible  to  be  sustained. 

If  the  defendants  have  received  anything  from  Castles,  it 
must  not  be  taken  into  account ;  but  with  respect  to  the  money 
received  from  Pearson,  it  ought  to  be  taken  as  a  discharge  for  the 
debt. 

As  to  the  pension,  either  they  have  received  it  or  they  have 
not ;  if  they  have,  it  was  distinctly  applicable  to  the  payment  of 
their  debt;  if  they  have  not,  they  must  show  why  they  did  not 
make  that  security  available. 


289  LIABILITY    OF    SURETY. 

PAIN  v.   PACKARD  ET  AL. 
13  Johns.  174.     1816. 

This  was  an  action  of  assumpsit  on  a  promissory  note  made 
by  Packard  &  Munson,  in  which  Packard  alone  was  arrested,  the 
other  defendanl  being  returned  not  round.  The  defendant,  Pack- 
ard, pleaded:  1.  Non-assumpsit.  2.  That  he  signed  the  note 
which  was  for  $100,  payable  on  demand,  as  surety  for  Munson; 
that  hi'  urged  the  plaint i IV  to  proceed  immediately  in  collecting 
the  money  due  on  the  aote  from  Munson  who  was  then  solvent; 
and  that,  if  the  plaintiff  had  then  proceeded  immediately  to  take 
measures  to  colled  the  money  of  Munson,  he  might  have  obtained 
payment  from  him;  hut  the  plaintiff  neglected  to  proceed  againsl 
Munson  until  he  became  insolvent,  absconded  and  went  away 
mil  of  the  stale,  whereby  the  plaintiff  was  unable  to  collect  the 
money  of  .Munson.  3.  The  third  plea  was  like  the  second,  ex- 
cept that  the  defendanl  alleged  a  promise,  on  the  part  of  the 
plaint  ill',  thai  he  would  immediately  proceed  to  collect  the  money 
of  Munson,  and  a  breach  of  that  promise,  by  which  the  defendant 
was  deceived  and  defrauded,  and  prevented  from  obtaining  the 
money  from  Munson.  etc. 

There  was  a  demurrer  to  the  second  and  third  pleas  and  a 
joinder  in  demurrer,  which  was  submitted  to  the  court  without 
argument. 

Per  Curiam.  The  facts  set  forth  in  the  plea  are  admitted  by 
ih  ■  demurrer.  The  principles  laid  down  in  the  case  of  The  Peo- 
ple v.  Jansen  (7  Johns.  33G)  will  warrant  and  support  this  plea. 
We  there  say  a  mere  delay  in  calling  on  the  principal  will  not 
discharge  the  surety.  The  same  principle  was  fully  and  explicitly 
laid  down  by  the  court  in  the  case  of  Tallmadge  v.  Brush.  But 
this  is  not  such  a  case.  Here  is  a  special  request,  by  the  surety, 
to  proe 1  to  collect  the  money  from  the  principal ;  and  an  aver- 
ment of  a  loss  of  the  money  as  against  the  principal,  in  conse- 
quence  of  such  neglect.  The  averments  and  facts  stated  in  the 
pi  ;i  are  not  repugnant,  or  contradictory  to  the  terms  of  the  note. 
The  suit  here  is  by  the  payee  against  the  makers.  The  fact  of 
Packard  having  been  security  only  is  fairly  to  be  presumed  to 
have  been  known  to  the  plaintiff.     He  was,  in  law  and  equity, 


PAIN  v.  PACKARD  ET  AL.  289 

therefore  bound  to  use  due  diligence  against  the  principal  in 
order  to  exonerate  the  surety.  This  he  has  not  done.  There 
can  be  no  substantial  objections  against  such  a  plea.  It  may- 
be said,  the  surety  might  have  paid  the  note  and  prosecuted  the 
principal ;  but  although  he  might  have  done  so,  he  was  not  bound 
to  do  it.  If  he  had  a  right  to  expedite  the  plaintiff  in  proceed- 
ing against  the  principal  and  choose  to  rest  on  that,  he  might 
do  so.  In  the  case  of  Trent  Nav.  Co.  v.  Harley  (10  East.  34) 
the  plea  was  similar  to  the  present  and  not  demurred  to. 

The  defendant  must,  accordingly,  have  judgment  upon  the 
demurrer. 

Judgment  for  the  defendant. 


CHAPTER  III. 

OF   THE   RIGHTS   OF   SURETIES   AND  GUARANTORS— CONTRIBU- 
TION  AND   SUBROGATION.* 

LAxXSDxVLE  v.  COX. 
7  B.  Man.  (Ky.)  101.     1828. 

Opinion  of  the  court  by  Chief  Justice  Bibb. 

Richard  Lansdale  and  James  Cox  were  the  sureties  of  Shanks, 
in  an  injunction  bond  to  Summers,  who  sued  Cox,  the  surviving 
obligor,  and  had  judgment  for  $730.24,  beside  costs,  which  was 
paid  by  Cox's  surety  in  a  replevin  bond,  and  afterward  paid  by 
Cox  to  his  surely.  These  proceedings  were  in  the  Nelson  circuit 
court. 

Cox  thereafter,  upon  motion  against  the  heirs  of  Shanks  [402] 
the  principal,  (stating  that  there  was  no  executor  or  admin- 
istrator of  Shanks,)  had  judgment,  and  execution,  upon  which 
the  sheriff  made  a.  small  part  of  the  judgment,  (about  $35.19,) 
and  returned  that  he  could  find  no  estate  whereof  to  satisfy  the 
residue. 

Cox  then  sued  his  motion  against  the  heirs  and  administrators, 
jointly,  of  his  co-security,  Lansdale,  for  contribution,  and  recov- 
ered judgment;  to  which  the  defendants  prosecute  this  writ  of 
error. 

The  whole  doctrine  of  contribution  between  securities  origi- 
nated with  courts  of  equity.  There  is  no  express  contract  for 
contribution ;  the  bonds,  obligations,  bills,  or  notes,  created 
liabilities  from  the  obligors  to  the  obligees.  The  contribution 
between  co-sureties  results  from  the  maxim,  that  equality  is 
equity.  Proceeding  on  this,  a  surety  is  entitled  to  every  remedy 
which  the  creditor  has  against  the  principal  debtor;  to  stand  in 
the  place  of  the  creditor;  to  enforce  every  security,  and  all  means 
of  payment  ;  to  have  those  securities  transferred  to  him,  though 


*  See  Sees.  905-920,  Vol.  6,  Cyclopedia  of  Law. 

290 


LANSDALE  v.   COX.  291 

there  was  no  stipulation  for  that.  This  right  of  a  surety  stands 
upon  a  principle  of  natural  justice.  The  creditor  may  resort 
to  principal,  to  either  of  the  securities,  for  the  whole,  or  to  each 
for  his  proportion,  and  as  he  has  that  right,  if  he,  from  partiality 
to  one  surety,  or  for  other  cause,  will  not  enforce  it,  the  court 
of  equity  gives  the  same  right  to  the  other  surety,  and  enables 
him  to  enforce  it.  Natural  justice  says  that  one  surety  having 
become  so  with  other  sureties,  shall  not  have  the  whole  debt 
thrown  upon  him  by  the  choice  of  the  creditor,  in  not  resorting 
to  remedies  in  his  power,  without  having  contribution  from  those 
who  entered  into  the  obligation  equally  with  him.  The  obligation 
of  co-sureties,  to  contribute  to  each  other,  is  not  founded  in  con- 
tract'between  them,  but  stood  upon  a  principle  of  equity,  until 
that  principle  of  equity  had  been  so  universally  acknowledged, 
that  courts  of  law,  in  modern  times,  have  assumed  jurisdiction. 
This  jurisdiction  of  the  courts  of  common  law  is  based  upon  the 
idea,  that  the  equitable  principle  had  been  so  long  and  so  gener- 
ally acknowledged,  and  enforced,  that  persons,  in  placing  them- 
selves under  circumstances  to  which  it  applies,  may  be  supposed 
to  act  under  the  dominion  of  contract,  implied  from  the  univer- 
sality of  that  principle.  For  a  great  length  of  time,  equity  ex- 
ercised its  jurisdiction  exclusively  and  undividedly ;  the  juris- 
diction assumed  by  the  courts  of  law  is,  comparatively  of  very 
modern  date;  and  it  attended  with  great  difficulty  where  there 
are  many  sureties ;  though  simple  and  easy  enough  where  there 
are  but  two  sureties,  one  of  whom  brings  his  action  against  the 
other  upon  the  implied  assumpsit  for  a  moiety. 

The  action  at  law,  then,  by  one  surety  against  his  co-security, 
arises  out  of  an  implied  undertaking,  not  by  force  of  express 
contract,  and  consequently  the  heirs  can  not  have  been  expressly 
bound  by  the  ancestor.  So  that  the  action  at  law,  by  one  surety 
against  the  representatives  of  a  deceased  co-surety,  must,  by 
the  principles  of  the  common  law,  be  against  the  executor  or 
administrator.  To  reach  the  heirs  in  a  suit  at  law,  the  remedy 
given  by  our  statute  in  such  cases,  must  be  jointly  against  the 
executors  or  administrators  and  heirs,  not  against  the  heirs  alone. 
The  remedy  in  equity  by  substitution  of  the  co-security  in  place 
of  the  creditor,  and  so  allowing  the  one  surety  his  redress  against 
his  co-surety  or  co-sureties  for  contribution,  still  remains;  the 


292  RIGHTS    OF    SURETIES    AND    GUARANTORS. 

remedy  at  law,  by  a  regular  action  jointly  against  the  heirs  and 
iitors  or  adminisl  rators,  by  force  and  operation  of  the  statute 
of  1792,  may  be  pursued. 

Reversed,  with  directions  to  Lower  court  to  dismiss  motion. 


JOHNSON  v.  JOHNSON. 
11  Moss.  359.     1814. 

Plaintiff  and  defendant  were  co-sureties  on  a  note  and  plain- 
tiff paid  the  debt.  Defendant  thereupon  gave,  at  plaintiff's  re- 
quest, a  nole  to  one  Holbrook  or  order  for  a  sum  equal  to  de- 
fendant's share  of  the  amount  so  paid  by  plaintiff  as  surety, 
and  Holbrook  immediately  indorsed  the  note  to  plaintiff.  This 
i  I  in ile  was  usurious,  and  for  that  reason  plaintiff  was  sub- 
sequently defeated  in  an  action  to  enforce  its  payment.  He  there- 
upon sued  defendant  on  the  original  obligation  of  contribution. 
At  the  trial  on  the  circuit  plaintiff  was  non-suited  and  the  case 
was  reserved  by  stipulation  for  the  whole  Court. 

Parker,  C.  J.  This  is  assumpsit,  in  which  the  plaintiff  de- 
clares for  the  sum  of  $259.50  paid,  laid  out,  and  expended  by 
him,  at  the  request  of  the  defendant,  and  to  his  use.  The  facts 
are  reported  by  the  Judge  before  whom  the  cause  was  opened, 
upon  which  he  directed  a  non-suit,  which  is  to  be  taken  off,  and 
the  defendant  to  be  defaulted,  if  on  those  facts  the  action  can 
be  maintained. 

(Here  the  Chief  Justice  recited  the  facts,  and  proceeded.] 
Against  this  suit  brought  upon  the  original  implied  promise  a 
defense  is  made,  upon  the  ground  that  the  note  given  by  the 
defendant,  and  accepted  by  the  plaintiff,  together  wTith  the 
plaintiff's  receipt  upon  the  bond,  are  a  discharge  in  law  of  the 
original  contract;  and  it  remains  for  us  to  determine  whether 
such  is  the  legal  operation  of  these  facts. 

We  begin  with  observing  that  the  payment  of  the  whole  bond 
by  the  plaintiff,  the  defendant  being  jointly  and  severally  bound 
with  him,  and  for  a  pre-existing  debt,  for  which  both  of  them 
were  equitably  to  be  considered  only  as  sureties,  raised  a  prom- 


JOHNSON    v.    JOHNSON.  293 

ise  in  law,  as  long  settled  in  this  State,  on  the  part  of  the  de- 
fendant, to  pay  his  moiety  on  demand  to  the  plaintiff ;  on  which 
promise  an  action  at  law  could  have  been  maintained,  and  against 
which  the  defendant  could,  according  to  the  facts  stated,  have 
made  no  legal  defense.  This  legal  claim  remains  unsatisfied, 
and  may  be  enforced  in  the  present  action ;  unless  the  note  given 
by  the  defendant,  which  appears  by  the  receipt  to  have  been 
accepted  by  the  plaintiff,  amounts  to  payment,  or  to  an  extin- 
guishment of  the  pre-existing  legal  contract. 

At  common  law  it  is  clear  that  a  subsisting  simple  contract 
is  not  discharged  or  extinguished  by  the  acceptance  of  another 
simple  contract,  given  by  the  same  party  for  the  same  considera- 
tion. Indeed,  the  new  contract  in  such  case  is  nothing  more  than 
a  new,  and  perhaps  better,  form  of  evidence,  than  before  existed, 
to  prove  the  same  original  contract.  The  authorities  to  support 
this  position  are  cited  in  the  case  of  Banorgee  v.  Hovey.  The 
Itfinciple  is  also  recognized  in  the  cases  of  Thatcher  et  al.  v. 
Dinsmore,  and  Maneely  v.  McGee  et  al.  There  are  also  several 
New  York  cases  to  the  same  effect. 

It  is  true  that  it  is  now  the  settled  law  of  this  State  that  a  ne- 
gotiable promissory  note,  given  by  a  party  chargeable  upon  an 
original  simple  contract,  and  accepted  by  the  other  party,  is  a 
discharge  of  the  original  contract,  unless  it  be  proved  not  to  have 
been  the  intention  of  the  parties  to  give  it  that  effect.  This  prin- 
ciple was  settled  in  the  two  cases  before  cited,  of  Maneely  v.  Mc- 
Gee et  al.,  and  Thatcher  et  al.  v.  Dinsmore.  The  reason  given  by 
the  Court  for  establishing  the  principle  is,  that  otherwise  the 
debtor  may  be  put  to  inconvenience,  and  perhaps  be  obliged 
to  pay  his  debt  twice;  as  he  cannot  set  up  a  payment  of  his 
original  debt,  after  .a  seasonable  indorsement  of  the  note,  against 
the  claim  of  an  innocent  indorsee. 

The  note  relied  upon  in  the  present  case  as  a  discharge  of  the 
legal  demand  of  the  plaintiff,  was  in  its  form  a  negotiable  note ; 
but  it  being  made  payable  to  a  third  person,  who  does  not  from 
the  facts  appear  to  have  had  any  interest  in  it,  and  who  im- 
mediately indorsed  it  over  to  the  plaintiff,  for  whose  use  it  was 
undoubtedly  given,  it  must  be  considered,  as  to  its  effect  upon 
the  present  question,  as  a  negotiable  promissory  note  given  to 
the   plaintiff.      This,    according   to   the    authorities   last   cited, 


RIGHTS    OF    SURETIES    AND    GUARANTORS. 

amounted  to  payment,  or  a  discharge  of  the  original  contract  or 
implied  promise,  unless  the  circumstances  attending  it  take  it  out 
of  the  principles  of  those  decisions. 

II  appears  thai  this  note,  at  the  time  it  was  given,  secured  more 
than  six  per  <cnt.  for  delay  of  payment;  and  so,  according  to  our 
statute  of  usury,  was  null  and  void  in  its  creation.  It  appears, 
further,  that  the  defendant  has  himself  alleged  this  in  his  de- 
fense,  upon  a  suit  broughl  upon  the  note,  and  that,  on  this 
ground,  he  prevailed  in  his  defense.  Can  he  now  set  up  this 
same  note,  void  in  its  creation,  and  rendered  functus  officio  by 
the  defense  he  made  against  it,  to  defeat  a  legal  and  equitable 
Liability,  against  which  he  had  no  moral  or  legal  defense? 

1  am  happy  in  believing  that  it  is  perfectly  clear  that  the 
defendant  cannot  escape  from  his  original  contract  by  a  device 
.so  dishonorable  as  he  has  resorted  to  on  this  occasion.  It  being 
admitted  that  the  note  by  which  he  would  discharge  himself  was 
usurious,  it  follows  that  it  was  void;  and,  being  void,  it  can  have 
no  effect  upon  the  original  contract,  in  which  there  was  no  taint 
of  usury.  The  note  was  nothing  but  a  security  for  the  debt: 
the  security  is  void,  but  the  debt  remains  good. 

This  principle  has  been  settled  in  many  English  cases,  ancient 
and  modern.  The  ease  of  Robinson  v.  Bland  decides  that  a  sub- 
sisting simple  contract  is  not  extinguished  by  another  contract 
of  th"  same  nature;  and  that,  where  the  security  given  is  void, 
as  being  against  positive  statutes,  the  contract  itself,  if  fair,  is 
Li  it  unimpeached  and  in  full  force.  But  the  case  of  Gray  v. 
Fowler  et  al.,  Assignees,  reported  by  H.  Blackstone,  is  more 
analogous  to  the  case  at  bar,  and,  indeed,  can  hardly  be  distin- 
guished from  it,  except  that  it  is  much  stronger,  from  the  circum- 
stance that  a  deed  had  been  given  as  security  upon  the  simple 
contract.  That  was  a  case  out  of  chancery,  and  solemnly  de- 
cided: and  the  Court  were  clear  and  unanimous  that,  notwith- 
standing there  was  gross  usury  in  the  security,  the  original  debt 
remained  unimpeached. 

The  counsel  for  the  defendant,  in  the  case  before  us,  has  re- 
lied upon  the  receipt  as  conclusive  evidence  of  the  discharge  of 
the  first  contract.  But  receipts  may  always  be  explained  by 
parol  testimony,  and  are  never  binding,  if  given  by  mistake,  or 
if  the  consideration  on  which  they  are  given  should  fail. 


MOORE  v.  BRUNER.  295 

Nor  does  it  avail  the  defendant  that  Holbrook  might  by  pos- 
sibility have  recovered  upon  the  note,  had  an  action  been  brought 
in  his  name.  It  is  sufficient,  in  this  action,  that  it  appears  that 
Holbrook  was  a  mere  agent  without  any  interest  in  the  trans- 
action between  these  parties. 

Upon  the  whole,  we  are  all  of  opinion  that  the  non-suit,  in  the 
case  before  us,  must  be  taken  off,  and  that  the  defendant  must  be 
called. 

Defendant  defaulted. 


MOORE    v.    BRUNER. 
31  III.  App.  400.    1889. 

Green,  P.  J.  It  is  averred  in  the  declaration  in  this  case  that 
plaintiff,  Bruner,  and  Moore,  the  defendant,  together  with  Mc- 
Cammon  and  Gray,  became  sureties  on  the  bond  of  the  guardian 
of  Barnes ;  that  the  guardian  died  owing  his  ward,  and  afterward 
judgment  was  rendered  in  Massac  probate  court  against  the 
estate  of  the  guardian  in  favor  of  the  ward  for  $500,  but  the 
estate  being  insolvent  no  part  of  this  judgment  was  paid;  that 
afterward  suit  was  brought  in  the  Massac  circuit  court  upon  the 
bond  against  Bruner  and  McCammon,  and  judgment  was  there 
recovered  against  them  for  $500  and  costs;  that  McCammon  is 
insolvent  and  Gray  died  insolvent;  that  plaintiff  Bruner  dis- 
charged said  judgment  in  full,  wherefore  defendant  became  liable 
to  pay  him  $269.45  by  way  of  contribution.  A  count  for  money 
paid  out  by  plaintiff  for  defendant  is  added.  The  cause  was 
tried  by  the  court.  Judgment  was  rendered  in  favor  of  the  plain- 
tiff for  $260  and  costs,  to  reverse  which  defendant  sued  out  this 
writ  of  error. 

The  cause  of  action  set  out  in  this  declaration,  is  the  payment 
made  by  Bruner  in  satisfaction  of  the  judgment  recovered 
against  himself  and  McCammon  as  sureties  upon  said  guardian's 
bond,  one-half  of  which  amount  so  paid,  instead  of  one-fourth, 
Bruner  insists  is  the  proportion  plaintiff  in  error  as  co-surety  is 
legally  liable  to  contribute,  because  of  the  insolvency  of  the  two 
other  co-sureties,  McCammon  and  Gray.  This  was  the  view  of 
the  trial  court  and  in  accordance  therewith  the  judgment  against 


RIGHTS  OF  SURETIES  AND  GUARANTORS. 

plaintiff  in  error  was  rendered.  The  court  erred  in  so  holding. 
At  law  the  amount  of  damages  which  plaintiff  was  entitled  to 
r  from  defendant  as  a  co-surety  was  one-fourth  of  the 
whole  debt  paid,  with  interest  from  the  time  of  payment.  There 
were  four  sureties,  each  of  whom,  as  between  themselves,  became 
liable  at  law  to  contribute  an  aliquot  portion  of  the  sum  paid  by 
Bruner,  and  this  aliquot  portion  is  to  be  ascertained  upon  the 
basis  of  the  number  of  sureties,  without  regard  to  their  solvency. 
Such  we  understand  to  be  the  law  in  this  state. 

It  is  said  in  the  opinion  of  Sloo  v.  Pool,  15  111.  48,  "Sureties 
are  individually  liable  to  the  creditor,  but  one  is  as  much  bound 
to  discharge  the  debt  as  another.  If  the  creditor  endeavors  to 
enforce  payment  from  them,  it  is,  as  between  themselves,  the 
dutj  of  each  to  pay  an  aliquot  portion  of  the  debt.  If  that  is  not 
done,  and  one  is  compelled  to  pay  the  whole,  he  is  entitled  to 
contribution  from  the  others  in  the  same  proportion.  The  law 
implies  an  agreement  between  them  when  they  become  respon- 
sible to  the  creditor,  that  if  one  shall  be  compelled  to  pay  the 
debt  the  others  will  contribute  so  as  to  make  the  burden  equal.  If 
one  pays  the  whole  debt  he  has  a  cause  of  action  against  the 
others  to  recover  their  just  proportion,  as  so  much  money  paid 
to  their  use.  His  right  to  contribution  is  complete  as  soon  as  he 
pays  the  debt,  and  he  may  at  once  call  on  the  co-sureties  to  bear 
the  common  burden  with  him.  At  law  he  can  not  sue  two  or  more 
jointly,  but  he  must  sue  each  separately,  and  he  can  only  recover 
from  one  an  aliquot  portion  of  the  debt,  to  be  ascertained  by 
the  number  of  sureties,  without  regard  to  their  solvency.  In 
equity,  if  one  is  insolvent  the  loss  is  apportioned  among  the 
others."  In  1  Parsons  on  Cont.,  35,  the  rule  is  stated  thus :  "At 
law  a  surety  can  recover  from  his  co-surety  only  that  co-surety's 
aliquot  part,  calculated  upon  the  whole  number,  without  refer- 
ence to  the  insolvency  of  either  of  the  co-sureties,  but  in  equity 
it  is  otherwise."  "We  have  examined  the  case  of  Golden  v.  Brand, 
75  111.  14S,  cited  on  behalf  of  appellee,  and  do  not  understand 
the  court  either  did,  or  intended  to,  abrogate  or  modify  the  rule 
announced  in  Sloo  v.  Pool,  supra. 

For  the  errors  indicated  the  judgment  is  reversed  and  the 
cause  remanded. 

Reversed  and  remanded. 


EMMERT    v.    THOMPSON.  297 

EMMERT  v.  THOMPSON. 
49  Minn.  386;  52  N.  W.  31.    1892. 

Appeal  from  district  court,  Nobles  county;  Brown,  Judge. 

Action  by  Joseph  Emmert  against  Peter  Thompson  and  others. 
From  a  judgment  for  defendants,  plaintiff  appeals.     Affirmed. 

Collins,  J.  Where  the  loan  of  money  was  made  by  defendant 
Cornwell  to  defendant  Marr,  to  secure  which,  as  agreed  upon,  the 
latter  mortgaged  his  entire  farm,  consisting  of  240  acres,  it  was 
for  the  stipulated  purpose  of  relieving  one  tract  (160  acres)  from 
the  trust  deed  held  by  Ormsby,  the  balance  (80  acres)  from  the 
Hayes  mortgage,  and  the  entire  farm  from  delinquent  taxes.  The 
trust  deed,  the  mortgage  last  referred  to,  and  the  taxes  were  rep- 
resented to  be,  and  in  fact  were,  first  liens  upon  the  premises; 
and  Cornwell  believed,  and  it  was  implied  from  what  Marr 
stated  when  applying  for  the  loan — there  were  no  other  incum- 
brances, and  that,  with  these  paid  off  and  discharged,  his  mort- 
gage would  take  their  place,  and  become  the  first  and  only  charge 
upon  the  property.  The  taxes  and  the  amounts  due  on  the  in- 
cumbrances, aggregating  $1,434.82,  were  paid  out  of  the  pro- 
ceeds of  the  loan,  in  accordance  with  the  agreement  under  which 
it  was  made.  Proper  releases  and  discharges  were  procured 
and  at  once  recorded,  in  the  mistaken  belief  on  the  part  of  Corn- 
well,  and  the  agents  who  transacted  the  business,  that  there  was 
no  other  or  prior  charge  upon  the  premises.  For  some  time 
thereafter  they  remained  in  ignorance  of  the  fact  that  plaintiff's 
mortgage  was  in  existence  and  of  record  when  the  one  in  question 
was  executed,  and  by  their  acts  had,  of  record,  become  the  senior 
lien.  As  Marr  was  and  is  insolvent,  and  plaintiff's  mortgage, 
with  costs  and  disbursements  of  foreclosure,  now  exceeds  in 
amount  the  value  of  the  farm  as  found  by  the  trial  court,  the 
seriousness  of  the  situation  is  quite  apparent.  The  court  below 
subordinated  the  plaintiff's  claim  to  that  of  defendant  Corn- 
well,  to  the  extent  of  the  payments  made  for  taxes,  and  to  satisfy 
and  extinguish  the  incumbrances,  reinstating  the  liens,  in  effect ; 


298  RIGHTS    OF    SURETIES    AND    GUARANTORS. 

and  its  right  and  power  so  to  do  is  the  principal  question  now 
before  as. 

It  has  been  well  said  that  the  doctrine  of  subrogation  has  been 
steadily  growing  and  expanding  in  importance,  and  becoming 
more  general  in  its  application  to  various  subjects  and  classes  of 
persons.  It  is  not  founded  upon  contract,  but  is  the  creation  of 
equity — is  enforced  solely  for  accomplishing  the  ends  of  sub- 
stantial justice;  and,  being  administered  upon  equitable  prin- 
ciples, it  is  only  when  an  applicant  has  an  equity  to  invoke,  and 
w  here  innocent  persons  will  not  be  injured,  that  a  court  can  inter- 
fere. It  is  a  mode  which  equity  adopts  to  compel  the  ultimate 
payment  of  a  debt  by  one  who  in  justice  and  good  conscience 
ought  to  pay  for  it,  and  is  not  dependent  upon  contract,  privity, 
or  strict  suretyship.  Stevens  v.  Goodenough,  26  Vt.  676 ;  Harns- 
berger  v.  Yancey,  33  Grat.  527;  Smith  v.  Foran,  43  Conn.  244. 
That  in  this  way  a  court,  under  a  great  variety  of  circumstances, 
may  relieve  one  who  has  acted  under  a  justifiable  or  excusable 
mistake  of  fact,  is  readily  conceded  by  appellant;  but  he  invokes 
and  seeks  to  have  applied  to  respondent's  case  the  general  rule 
that  the  doctrine  of  subrogation  will  not  be  exercised  in  favor  of 
a  volunteer  or  a  stranger  who  officiously  intermeddles,  such  as 
a  person  who  pays  without  any  obligation  so  to  do,  or  one  who, 
without  any  interest  to  protect,  liquidates  the  debt  of  another. 
There  are  a  very  respectable  number  of  cases,  several  having  been 
cited,  in  which  relief  has  been  refused  under  circumstances  pre- 
cisely like  those  now  before  us,  where  one  who  has  loaned  and 
used  his  money  in  good  faith,  and  for  the  express  purpose  of  re- 
lieving a  debtor  from  a  pressing  obligation,  and  his  real  property 
from  a  specific  lien  for  the  amount  of  the  same,  under  a  genuine 
but  excusable  misapprehension  as  to  the  rank  and  position  of 
security  taken  by  him  on  the  same  property,  has  been  treated 
and  characterized  as  a  volunteer,  a  stranger,  and  an  officious 
intermeddler,  and  denied  the  rights  of  an  equitable  assignee. 
But  of  late  years,  with  the  development  of  the  principle  on 
which  the  doctrine  is  founded,  the  courts  have  been  taking  a 
broader  and  more  commendable  view  of  the  situation  of  such  a 
party,  and  at  this  time  very  little  is  left  of  the  views  expressed 
in  the  earlier  cases.  The  better  opinion  now  is  that  one  who  loans 
his  money  upon  real  estate  security  for  the  express  purpose  of 


EMMERT    v.    THOMPSON.  299 

taking  up  and  discharging  liens  or  incumbrances  on  the  same 
property  has  thus  paid  the  debt  at  the  instance,  request,  and 
solicitation  of  the  debtor,  expecting  and  believing,  in  good  faith, 
that  his  security  will,  of  record,  be  substituted,  in  fact,  in  place 
of  that  which  he  discharges,  is  neither  a  volunteer,  stranger,  nor 
intermeddler,  nor  is  the  debt,  lien,  or  incumbrance  regarded  as 
extinguished,  if  justice  requires  that  it  should  be  kept  alive  for 
the  benefit  of  the  person  advancing  the  money,  who  thereby  be- 
comes the  creditor.  Of  the  many  authorities  on  this,  we  cite 
Association  v.  Thompson,  32  N.  J.  Eq.  133 ;  Gans  v.  Thieme,  93 
N.  Y.  225 ;  Sidener  v.  Pavey,  77  Ind.  241 ;  McKenzie  v.  McKenzie, 
52  Vt.  271;  Cobb  v.  Dyer,  69  Me.  494;  Levy  v.  Martin,  48  Wis. 
198,  4  N.  W.  Rep.  35 ;  Insurance  Co.  v.  Aspinwall,  48  Mich.  238, 
12  N.  W.  Rep.  214;  Crippen  v.  Chappel,  35  Kan.  495,  11  Pac. 
Rep.  453;  3  Pom.  Eq.  Jur.  1212;  Harris,  Subr.  811,  816;  Dixon, 
Subr.  165. 

It  is  contended  by  appellant  that  Cornwell  must,  under  the 
circumstances,  be  declared  culpably  negligent  when  taking  his 
security  and  discharging  of  record  the  Ormsby  and  Hayes  liens ; 
and,  further,  that,  as  the  plaintiff's  mortgage  was  then  of  record, 
he  had  notice  of  it,  in  contemplation  of  law,  and  could  not  have 
been  misled  or  mistaken.  Marr's  application  for  a  loan  was  for 
the  avowed  purpose  of  taking  up  and  discharging  the  Ormsby 
and  Hayes  liens,  and  was  well  calculated  to  convey  the  impression 
that  these  were  the  only  incumbrances.  He  intentionally  or 
otherwise  concealed  the  truth,  omitting  to  state  the  existence  of 
a  junior  incumbrance  in  a  large  amount,  a  knowledge  of  which 
would  have  ended  at  once  all  negotiations  with  Cornwell 's  agents. 
It  was  misleading,  and  the  persons  last  named  were  not  negligent 
because  they,  to  some  extent,  relied  upon  and  were  misled  by  it. 
See  Newell  v.  Randall,  32  Minn.  171,  19  N.  W.  Rep.  972.  It  is  a 
common  thing  for  courts  of  equity  to  relieve  parties  who  have 
by  mistake  discharged  mortgages  upon  the  record,  and  to  fully 
protect  them  from  the  consequences  of  their  acts,  when  such 
relief  will  not  result  prejudicially  to  third  or  innocent  persons. 
Gerdine  v.  Menage,  41  Minn.  417,  43  N.  W.  Rep.  91.  Paraphras- 
ing slightly  a  remark  made  in  the  opinion  therein,  it  may  be  said 
that,  considering  this  case  as  it  stands  between  the  appellant  and 
respondent  Cornwell,  it  is  obvious  that  it  would  be  most  unjust 


300  RIGHTS    OF    SURETIES    AND    GUARANTORS. 

and  inequitable  not  to  place  the  parties  in  statu  quo  with  respect 
to  the  amounts  paid  out  upon  Liens  which  were  superior  to  that 
held  by  plaintiff,  now  being  foreclosed.  It  is  true  that  at  the  out- 
sel  the  mistake  grew  out  of  an  error  in  the  abstract  books  kept 
by  CornwelTs  agents;  but  later,  when  examining  the  records  in 
the  office  of  the  register  of  deeds,  the  error  was  unnoticed  and  the 
mistake  undiscovered.  It  was  a  mistake  of  fact,  and,  in  our  judg- 
ment, not  of  such  a  character  as  to  bar  the  respondents'  claim 
to  equitable  relief.  That,  in  a  proper  case  of  mistake  of  fact,  such 
relief  may  be  afforded  notwithstanding  the  intervening  mortgage 
was  of  record  when  the  error  was  committed,  is  well  settled. 
Geib  v.  Reynolds,  35  Minn.  331,  28  N.  W.  Rep.  923.  Cornwell 
misunderstood,  and  was  justifiably  ignorant  of,  the  facts,  and 
acted,  through  his  agents,  upon  the  assumption  that  he  and  they 
knew  the  true  state  of  the  title  when  the  liens  which  his  money 
had  discharged  were  satisfied  of  record,  and  plaintiff's  mortgage 
advanced  to  the  position  of  the  senior  incumbrance,  without  a 
single  act  of  his,  and  to  the  very  great  detriment  of  the  person 
win i  had  brought  it  about.  The  court  was  right  in  applying  the 
principle  of  subrogation,  or  "equitable  assignment,"  as  it  is 
frequently  called. 

Judgment  was  entered  below,  directing  that  the  premises  be 
sold,  on  foreclosure  of  plaintiff's  mortgage,  as  one  farm,  and 
that,  out  of  the  net  proceeds,  there  be  first  paid  to  respondent 
Cornwell  the  sums  of  money  which  he  paid  out  as  taxes,  and  to 
take  up  and  satisfy  the  incumbrances  before  mentioned.  The  ap- 
pellant's counsel  distinctly  approves  that  part  of  the  judgment 
which  requires  a  sale  of  the  premises  as  an  entirety,  but  makes 
the  point,  in  case  we  affirm  the  action  of  the  trial  court  on  the 
main  question,  that  the  farm  should  have  been  sold  subject  to 
the  subrogator's  lien  for  a  specific  sum  on  the  160  and  for  an- 
other specific  sum  on  the  80  acre  tract,  and  thus  there  would 
have  been  avoided  the  possibility,  which  he  now  suggests,  of  hav- 
ing shifted  over  upon  one  of  these  tracts,  to  some  extent,  a 
1  miilen  which  ought  to  wholly  rest  upon  the  other.  It  is  evident 
from  the  record  that  the  attention  of  the  trial  court  was  not 
called  to  this  point,  and  hence  the  order  that  the  sale  be  of  the 
whole  as  one  body  of  land.  But  we  are  unable  to  see  how  the 
resull  now  suggested  by  counsel  would  have  been  avoided  by  the 


EMMERT    v.    THOMPSON.  301 

adoption  of  his  plan  without  selling  the  tracts  separately,  keep- 
ing the  funds  derived  from  each  distinct,  and  applying  the  same 
to  the  liquidation  of  the  liens,  so  far  as  they  might  go.  Counsel 
does  not  contend  that  the  two  tracts  of  land  should  have  been  sold 
separately,  but,  as  before  stated,  indorses  the  judgment  directing 
a  sale  en  masse.  He  is  concluded  on  this  point  by  his  position 
as  to  the  manner  of  sale. 

Judgment  affirmed. 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


AA    000  718  517    6 


* 


^ 


